The United Kingdom has taken a major step toward modernizing its financial system. The Financial Conduct Authority (FCA) has released a plan detailing how fund managers can begin using Blockchain — the same technology that powers cryptocurrencies — to manage their products.

The goal is to boost efficiency, simplify processes, and encourage innovation that benefits both financial institutions and investors.

Tokenization: the digitalization of investment funds

One of the plan’s key elements is tokenization of funds, meaning fund shares would be converted into digital form and managed through Blockchain.
Blockchain is essentially a digital ledger that securely and transparently records all transactions, allowing for precise ownership tracking without intermediaries or complex verification processes.

“Tokenization has the potential to fundamentally transform asset management for the benefit of both firms and investors,” said Simon Walls, Executive Director for Markets at the FCA. “Many things can already be done under existing rules, and others will become possible through the changes we’re proposing,” he added.

The FCA’s plan is built on three key pillars to make the system more transparent and efficient. The first involves introducing digital fund registers, which would move shareholder records from paper-based systems to Blockchain, allowing real-time and transparent updates.

The second focuses on simplifying trading to make buying and selling shares easier for both investors and fund managers – whether for traditional or tokenized funds.

The third pillar promotes Blockchain-based settlement, establishing clear rules for on-chain transactions. This would accelerate processes and reduce costs. According to the FCA, tokenization could enhance competition, broaden investment access – especially in private markets and infrastructure – and cut administrative burdens.

Regulator aims to build trust and clear rules

The FCA plans to further develop its framework over the coming years as tokenization expands. “The UK has an opportunity to become a global leader, and we want to give asset managers the confidence and certainty to move forward,” Walls said.

Criticism and early regulatory changes

The UK government’s approach to crypto regulation has faced criticism in recent years. The think tank OMFIF noted in June that the country had lost its early advantage in DLT finance (distributed ledger technology – a broader concept encompassing Blockchain). In response to industry pressure, the FCA last week lifted its 2019 ban preventing retail investors from trading crypto ETNs (exchange-traded notes – investment products similar to ETFs). They can now be traded on approved UK exchanges.

At the same time, the Bank of England is considering easing planned limits on stablecoin holdings for firms to allow for more efficient management of reserves backed by traditional currencies.

Sources:

https://www.fca.org.uk/news/press-releases/fca-supports-tokenisation

https://cointelegraph.com/news/uk-fca-roadmap-tokenized-funds-asset-management