Fund Tokenisation Is Not just a Technology Upgrade. It Is a Governance Restructuring.
The FCA’s CP25/28 does not just allow DLT in authorised funds.
It rewires who does what, who carries liability, and what the fund manager’s role actually is.
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The UK manages £14.3 trillion in assets and calls itself a global leader in investment management. It has been talking about fund tokenisation governance since at least November 2023, when the Investment Association published its Blueprint for Implementation. Yet by the time the FCA published Consultation Paper CP25/28 on 14 October 2025, only a handful of firms had moved: the first tokenised UK UCITS was authorised in January 2025, Baillie Gifford launched a tokenised OEIC in June, and Federated Hermes tokenised a UK-domiciled money market fund in October. The gap between ambition and adoption is wide. But the real significance of CP25/28 is not about closing that gap. It is about rewiring accountability.
The consultation proposes three things that, taken together, change the fund tokenisation governance architecture of UK authorised funds. First, it confirms that DLT-based registers are permissible under existing COLL rules and provides interpretive guidance to give firms confidence to adopt them. Second, it introduces an optional Direct to Fund (D2F) dealing model that removes the authorised fund manager (AFM) as counterparty to investor dealings. Third, it sets out a three-phase roadmap that extends well beyond registers into tokenised assets, smart contract compliance, and fully on-chain investment products.
Fund managers who treat CP25/28 as a technology project will miss the structural question underneath: if the infrastructure performs what the AFM used to perform, what is the AFM’s role, and who carries the liability when it breaks?
The D2F Model Recasts the AFM's Role in the Dealing Chain
The architecture of UK authorised funds has always placed the AFM at the centre of every investor transaction. When an investor buys or redeems units, the AFM acts as principal, entering back-to-back arrangements with the depositary to issue or cancel those units. This is not incidental. The entire COLL sourcebook assumes this structure. Client money rules, AML obligations, pricing controls, and settlement reconciliation all flow through the AFM because the AFM is the counterparty.
CP25/28 proposes an alternative. Under D2F, investors transact directly with the fund or its depositary. The AFM no longer acts as principal in the dealing chain. The FCA frames this as optional, and it is: firms can continue with the existing box/principal model. But the economics are directional. Luxembourg and Ireland already operate direct dealing models. The Investment Association has been advocating for D2F since 2019. The FCA now proposes rule changes across COLL 3, 4, 5, 6, 7, 8, and 15 to make D2F available for the full range of authorised funds (UCITS, NURS, QIS, and LTAFs).
The fund tokenisation governance implications follow directly. If the AFM steps out of the dealing chain, its compliance obligations around those dealings change. AML responsibility shifts. Client money safeguards may no longer apply in the same way. The depositary’s oversight role expands.
State Street, in its consultation response, flagged this directly: the D2F model creates “significant operational, legal, and governance challenges” for depositaries, including around safeguarding assets, monitoring investor flows, and managing settlement risks. The FCA acknowledged that AML responsibilities under D2F “require specific analysis” and said it would discuss this further with industry. That is a polite way of saying the liability map has not been drawn yet.
What Remains of the Fund Manager When the Operations Move On-Chain
That is the immediate operational shift. The harder fund tokenisation governance question emerges when this logic is extended across the FCA’s wider tokenisation roadmap.
Consider what happens when you map the AFM’s current operational functions against CP25/28’s three phases. Register maintenance moves to DLT under the Blueprint model (Phase 1). Dealing and settlement shift to the depositary under D2F. Reconciliation between register, transfer agent, and custodian becomes redundant when DLT provides a single, shared, immutable record. And the consultation explicitly discusses “embedded compliance,” where smart contracts enforce investor whitelists and restrict transfers to addresses that have passed KYC checks.
Strip those functions away, and what remains is portfolio management, product governance, and regulatory accountability. For large asset managers whose competitive advantage sits in investment capability and brand, that is a reasonable trade. They shed operational cost while retaining the high-value function. Industry estimates cited in commentary on CP25/28 put the aggregate savings from tokenisation at USD 135 billion across the UK, EU, and US fund industries. Those savings come from removing operational layers. Mid-tier AFMs and transfer agents currently provide those layers.
The distinction matters because not all fund managers are positioned the same way. Firms whose value proposition is investment-led (research, alpha generation, asset allocation) will see tokenisation as a cost reduction. Firms whose value proposition is primarily operational (administration, dealing, record-keeping, distribution) face a different question entirely, one they have not yet answered publicly.
The FCA’s roadmap makes this trajectory explicit. Phase 1 (tokenised registers) is the consultation in front of us. Phase 2 (tokenised assets and portfolios) introduces programmable tokens and self-executing smart contracts for model portfolios. Phase 3 (tokenised cash flows and composability) envisages fully on-chain investment products where consumers hold tokenised assets directly in digital wallets. By Phase 3, the fund manager’s operational role looks nothing like it does today. As I explored in a previous analysis of how governance frameworks must be built for the specific firm, one-size-fits-all approaches to compliance will not survive this transition.
The Governance Gaps That Neither SM&CR Nor Consumer Duty Currently Fill
The preceding analysis describes the FCA’s stated roadmap. What follows is inference about the fund tokenisation governance questions that roadmap opens, questions the consultation itself does not address.
If a smart contract enforces an AML whitelist and a sanctioned person bypasses it because of a code error, who is the accountable SMF holder under SM&CR? The AFM, who chose to rely on the technology? The depositary, who was acting as principal under D2F? The smart contract developer, who is probably not a regulated person?
SM&CR was designed to assign accountability to named individuals for specific functions. It was not designed for a world where compliance decisions are executed by code. CP25/28 does not resolve this, and given that the consultation concerns Phase 1 (registers and dealing), it arguably does not need to yet. But the roadmap commits the FCA to Phase 2 and Phase 3, where these questions become unavoidable.
A similar gap exists under Consumer Duty. If tokenisation materially reduces the AFM’s operational costs, how much of that saving must reach the end investor to satisfy fair value under PRIN 2A.4? The FCA has not addressed this in CP25/28. But the logic of Consumer Duty is clear: if the firm’s costs fall and the investor’s charges do not, the Assessment of Value must explain why.
The counterargument is that this is premature. CP25/28 is a Phase 1 consultation. Smart contract compliance and tokenised portfolio management are Phase 2 and Phase 3 propositions. Why alarm boards about risks that are years away?
This is fair as a matter of timing. But it misses the FCA’s own cadence. The consultation describes the three-phase roadmap not as aspirational but as a sequenced programme of regulatory change. Phase 2 work is already underway: the FCA has said it will consult on the use of tokenised money market fund units as collateral under UK EMIR. Firms that wait for Phase 2 rules before asking Phase 2 governance questions will be reactive rather than prepared.
What Fund Manager Boards Need to Decide Before H1 2026
The FCA expects to publish final rules in H1 2026, potentially with immediate effect. Before that policy statement lands, fund manager boards need to answer three questions.
First, does our firm adopt D2F? This is not a technology question. It is a business model question. D2F changes the dealing model, the depositary relationship, the AML liability map, and the firm’s COLL obligations. The board needs a D2F impact assessment that covers all four dimensions, not a technology feasibility study.
Second, where does our firm sit on the tokenisation value chain in three years? Map the current operational functions against the three-phase roadmap. Identify which functions move to DLT, which move to smart contracts, and which remain with the AFM. If the answer is that most operational functions migrate to infrastructure, the board needs to decide whether the firm’s future is as an investment-led manager or something else entirely. Artizan Governance’s deep dive and insight series explores these structural shifts across multiple regulatory developments.
Third, who carries the liability? The consultation leaves open questions on SM&CR accountability for DLT-dependent processes, AML responsibility under D2F, and operational resilience for blockchain-based registers. These are not questions for the COO. They are questions for the board, because the answers determine the firm’s risk profile.
According to State Street’s 2025 Digital Assets and Emerging Technology Study, only 14% of European respondents expect mainstream fund tokenisation adoption within two years. Around 60% said three to nine years. That timeline may feel comfortable. But the FCA authorised the first tokenised UK fund in January 2025 under the Blueprint model. It published a full regulatory roadmap in October 2025. It expects final rules by mid-2026.
The fund tokenisation governance architecture is moving faster than the industry’s comfort level suggests. The question for fund manager boards is whether they will have shaped their governance before that architecture shapes it for them.
This article is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.
Date: 20 November 2025
Written by: Asad Bukhory