The FCA’s digital assets regime and fund distribution

The calendar matters, so here it is.

Right now, two parts of the UK crypto framework are in force. The financial promotion regime has caught cryptoasset promotions under section 21 of FSMA since October 2023, and anti-money-laundering registration runs under the Money Laundering Regulations 2017. Everything else is proposed. A manager should read the rest as the FCA’s stated direction rather than binding rules, with one exception noted below.

The broad cryptoasset activities regime is due to go live on 25 October 2027, when the general prohibition applies to a set of newly regulated cryptoasset activities. An authorisation gateway opens ahead of that, from 30 September 2026 to 28 February 2027, set out in the FCA’s perimeter guidance in CP26/13. The design runs on “same risk, same regulatory outcome”. Rather than write a standalone crypto rulebook, as the EU did with MiCA, the UK is pulling cryptoassets inside FSMA: a new CRYPTO sourcebook, a new client-asset chapter at CASS 17, and the existing conduct machinery (the Principles, SYSC, the senior managers regime, the Consumer Duty) laid over the top.

The perimeter creates categories the fund world needs to recognise: a qualifying cryptoasset; a qualifying stablecoin that references a single fiat currency; and, the one that matters for funds, a specified investment cryptoasset — a tokenised security, meaning a share or debt instrument recorded on a distributed ledger. That last category is the join between the crypto regime and the fund world. A tokenised fund unit is, in regulatory terms, a security token.

One piece has already crossed from proposal to finalised rule: fund tokenisation. The FCA consulted on it in CP25/28 in late 2025 and finalised it in Policy Statement PS26/7 on 30 April 2026, bringing tokenised authorised funds inside the perimeter. Three weeks later, on 18 May 2026, the FCA and the Bank of England published a joint Call for Input on tokenisation across UK wholesale markets. Fund tokenisation is finalised; the rest is still proposed.

The regime treats a qualifying stablecoin as regulated settlement money. The FCA’s issuance proposals in CP25/14 are designed to make a qualifying stablecoin behave like cash rather than an investment. An issuer has to hold backing assets equal to 100% of coins in issue at all times, defaulting to low-risk assets, with a minimum share kept in on-demand bank deposits. It has to redeem at par for every holder, retail and institutional alike, with payment by the end of the next business day. And it can pass no interest to holders, which is what keeps the instrument money-like. The backing sits in a statutory trust with an unconnected third party, reconciled daily.

For distribution, the point is settlement timing and cost. Subscriptions and redemptions currently settle on delayed cycles through several intermediaries, each adding a day and a fee. Put a regulated stablecoin on the same ledger as tokenised fund units and you can settle atomically: units and cash change hands in a single transaction. Settlement delay collapses, reconciliation steps disappear, counterparty exposure during settlement goes away, and cost comes down. To a fund manager, the stablecoin is a settlement tool that cuts subscription and redemption latency on every deal.

The second pillar, tokenisation with direct dealing, removes intermediaries from the distribution chain. Tokenisation, at its plainest, means keeping the register of fund units on a distributed ledger instead of in a transfer agent’s conventional system. The FCA’s first clarification, carried from CP25/28 into PS26/7, is that this is already allowed. The COLL register rules are technology-neutral and outcomes-based, so a DLT-based register, including one on a public network, already fits the framework, provided the manager keeps the ability to make unilateral changes to the register for court orders, deaths, fraud and mandatory redemptions.

Direct dealing takes the manager out of the middle. Today a fund unit moves through a chain: manager, distributor, transfer agent, custodian, investor. Tokenised units with direct dealing let investors transact with the fund itself, with the depositary acting as principal. That conventional chain exists mainly to intermediate dealing and settlement, so removing the intermediaries strips out steps, cost and time. Industry analysis puts the potential saving at roughly $135 billion in fund operating costs, around 25% of current operating costs. Against a £1.46 trillion fund market, a cost gap of that size compounds over time.

On 8 October 2025 the FCA reopened retail access to crypto exchange-traded notes, treating them as Restricted Mass Market Investments on FCA-approved exchanges while keeping the retail crypto derivatives ban in place. The FCA built settlement and disclosure infrastructure first, then opened one controlled retail access point, and is now assembling the institutional activity regime for 2027. Alongside it, the Bank of England and FCA Digital Securities Sandbox is testing live issuance and settlement of tokenised assets, with a live synchronisation service targeted for 2028.

Stablecoins as settlement assets. Tokenised registers with direct dealing. Sandbox testing. Retail on-ramps. This is about how funds are distributed, settled and recorded — not whether they hold cryptoassets. A manager running tokenised units, direct dealing and atomic settlement can offer faster access, lower cost and a direct relationship with the investor. Lower-cost, faster distribution tends to attract flows over time.

The regime treats tokenised distribution as a strategic question a board owns, not something operations decides on its own. Two things make that explicit.

First, the conduct framework applies in full. The FCA runs the existing SYSC requirements, the senior managers regime and the Consumer Duty across tokenised distribution. Cryptoasset activities fall inside designated investment business, which pulls in full SYSC and conduct oversight.

Second, operational resilience applies in full. A firm using public, permissionless networks for tokenised funds stays responsible for resilience and integrity even though it holds no contractual control over the network. Under SYSC, resilience responsibility stays with the firm even where a third party runs the infrastructure.

So the board’s job is to work out where tokenisation, direct dealing and stablecoins would change its distribution economics and intermediary relationships; to make a deliberate call on timing, whether to lead, follow or wait; and to hand accountability to a named senior manager with the governance and resilience to match.

The answers should come out of strategy, not an IT roadmap.

1. Has the board seen worked scenarios showing how tokenisation, direct dealing and stablecoins would move its distribution costs and intermediary relationships?
2. Is there a named senior manager accountable for digital assets distribution strategy?
3. Has the firm worked out which of its funds could move to DLT-based registers and direct dealing, with an explicit decision on when?
4. Are there completed operational resilience assessments for tokenised funds, including the parts of the infrastructure outside the firm’s direct control?
5. What are the firm’s largest distributors and its depositary planning for tokenisation, and what happens if they move and the firm doesn’t?

Substantive answers live in strategy documents with a named owner.

Plenty of managers have handed the digital assets regime to compliance and technology and marked it distant, a 2027 problem, still only proposed. The fund tokenisation rules are finalised. Retail access is live. The sandbox is running. The cost and speed advantages of tokenised distribution are already visible.

The response cuts across distribution, operations, technology, legal and compliance, which is why it needs a named senior owner and a board behind it. This is a decision about the firm’s distribution model over five years, not a systems upgrade.

This insight is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.