FCA Launches Fund Tokenization Initiative on Public Blockchains

TLDR

• FCA's initiative aims to enhance access for digital-native investors.
• UK asset management sector has £14.3 trillion in assets.
• Ethereum is highlighted as the preferred blockchain platform.

The UK's Financial Conduct Authority (FCA) recently unveiled a new initiative to permit fund tokenization on public blockchains like Ethereum. This move is designed to promote financial innovation and enhance access to investment products for younger, digital-native investors. The proposal forms a part of the FCA's broader strategy to modernize the UK's asset management industry and boost its global competitiveness.

The FCA's plan is driven by Executive Director of Markets, Simon Walls, who has a history of advocating for regulatory modernization. The initiative is built upon the 2023 "Blueprint" from the Investment Association and reflects previous work by the Asset Management Taskforce's Technology Working Group. Communications from the FCA to UK Prime Minister Keir Starmer in January 2025 emphasized the importance of digital adoption for market competitiveness.

Strategic Industry Collaboration and Support

Simon Walls commented on the proposal, stating, "There are many things that firms can do under our existing rules and more that become possible with the changes we propose enacting now." The FCA is prepared to collaborate with the industry to design the subsequent stages of this initiative. This consultation suggests a path for the UK to potentially become a world leader in this area.

"The FCA’s plans to support fund tokenization are a welcome step towards aligning regulation with technological progress..."

Richard Baker, CEO of Tokenovate

Richard Baker, CEO of Tokenovate, supports the FCA's steps, describing them as crucial for aligning regulation with technological advances. He highlights that clear guidance on the operation of tokenized funds within existing frameworks will empower firms to confidently adopt standardized solutions.

Impact on the Asset Management Sector

The UK, being the world's second-largest investment management center with £14.3 trillion in assets under management, stands to benefit significantly from the proposed changes. While the primary beneficiaries are asset managers and funds interested in experimenting with tokenization, the FCA's released documents do not specify any grants or direct state funding allocations at this time.

The proposal is blockchain agnostic but specifically mentions Ethereum. This suggests a broad framework that could include other public blockchains in the future, though Bitcoin (BTC) is not directly referenced. The focus remains on fund tokenization and operational efficiency rather than payment systems.

Potential Benefits for Cryptocurrencies

Direct beneficiaries of this initiative include Ethereum (ETH), which is highlighted as the public blockchain platform of choice in the FCA context. Indirectly, security token platforms such as Polygon, Avalanche, and Stellar might also see impacts, depending on fund architecture choices.

The FCA's proposals are part of their ongoing consultation process (CP25/28), which invites industry feedback before final implementation. This move is deemed necessary to maintain the UK's competitive edge as other regions advance similar reforms. The FCA's documentation emphasizes innovation as a key growth contributor, positioning the UK as a leader in asset management.

Community and Developer Perspective

So far, no public comments from notable cryptocurrency figures like Vitalik Buterin have been noted. However, the sentiment within the UK's asset management and distributed ledger technology sectors appears positive. Tokenovate’s CEO and others in the industry have voiced their support for the regulatory clarity offered by this proposal.

The FCA's encouragement of co-designing the next steps through industry consultation reflects its inclusive approach. This process is expected to spur discussions in institutional DeFi and security token working groups, especially on platforms like GitHub and Discord.

Further information can be found in detailed FCA releases such as the FCA Supports Tokenisation Initiatives and the FCA Consultation on Fund Tokenisation Progress.