05 Nov The FCA Should Seize the Opportunity in Tokenisation
By Jesse Knutson, Head of Operations, Bitfinex Securities
This article was originally posted on Money Marketing.
To unlock tokenisation’s potential for the sector, the FCA must ensure that its policy framework is not constrained by inefficiencies.
The Financial Conduct Authority (FCA) recently announced its latest consultation on fund tokenisation in asset management. This marks an important step in bringing the UK closer to a digital-first financial system.
For the asset management industry and the advisers who support it, this should be seen as the first serious opportunity to reshape the UK’s financial system and move towards a digital-first future.
Describing tokenisation as a “key component of the future of financial services” in its latest proposal, the UK regulator is clearly serious about improving efficiency, transparency and competitiveness in financial markets.
However, to unlock tokenisation’s potential for the sector and catch up with global leaders in the technology, the FCA must ensure that its policy framework is not constrained by the inefficiencies of the traditional asset management sector.
What Tokenisation Would Really Mean
Traditional finance has long relied on layers of intermediaries to perform basic functions: settlement, custody, record-keeping and reconciliation.
Each layer adds fees, delay and opacity. Investors struggle to have a real-time view of where their assets are held or how trades flow through the system.
By recording assets and ownership natively on public blockchains (decentralised digital ledgers that allow transactions to be verified, timestamped and permanently stored without a central authority), tokenisation has the potential to radically increase transparency, efficiency and investor access.
"This is an exciting chance for the UK to position itself at the forefront of the transition toward digital markets."
If UK institutions, regulators and technology providers come together to build trusted, interoperable frameworks for tokenisation, in practice, this will come with benefits for everyone involved.
Funds could issue and redeem units in real time, track asset flows with full transparency and automate compliance checks directly on-chain. Clients and advisers would gain an always-on, verifiable view of holdings and valuations, improving trust and reporting accuracy.
For regulators, tokenisation enables continuous, data-driven oversight rather than retrospective audits, and for asset managers raising capital, they can access new investor bases, particularly retail participants and those in emerging markets.
These investors will get access to UK managers, bringing more money into the industry and accessing investors once out of reach.
The FCA’s Opportunity
The FCA’s consultation is an exciting chance for the UK to catch up with, and position itself at the forefront of, the global transition toward digital markets.
Other jurisdictions have already moved decisively on this – for example, the EU’s Markets in Crypto-Assets Regulation (MiCA), which provides a comprehensive framework for tokenised assets.
The UK has the potential to match and even surpass these initiatives, but only if the policy framework focuses on transparency, efficiency and innovation, rather than adapting it to fit legacy models.
A Blockchain-First Approach
The FCA’s consultation rightly identifies the need to support innovation in asset management.
However, to deliver on that promise, the regulatory framework for running a tokenised fund and ‘direct to fund’ (D2F) dealing must remain focused on blockchain principles rather than adapted to protect incumbent interests.
The regulator should therefore encourage public-chain deployment of tokenised assets, while setting robust standards for compliance, identity verification and data protection. The technology to do this already exists; it just needs legislating and adoption.
"If the FCA designs a policy that prioritises open, blockchain-based systems, it will not only improve efficiency, but also democratise access."
A genuinely tokenised financial system enables instant settlement – the point at which ownership and payment are transferred simultaneously on-chain. This removes the delays and counterparty risk that plague traditional post-trade processes.
Self-custody is often misunderstood as a threat to investor protection. In reality, blockchain technology allows for programmable compliance, where assets can be transferred only between approved wallets.
In a whitelisted ecosystem, the risk from hacks is pretty much non-existent and ensures security and regulatory oversight without sacrificing efficiency.
A Chance to Rebuild Market Infrastructure
Tokenisation also provides an opportunity to rethink the role of intermediaries in asset management. Settlement desks and brokers manage friction that blockchain eliminates.
This doesn’t mean every intermediary disappears, but their functions can evolve. Market participants can focus on value creation and advisory expertise, rather than manual reconciliation and compliance overheads.
If the FCA designs a policy that prioritises open, interoperable, blockchain-based systems, it will not only improve efficiency but also democratise access.
"The UK has a genuine chance to close the gap with global leaders in tokenisation – but that requires ambition."
Smaller asset managers, platforms and advisers will be able to compete on a more level playing field, offering new investment opportunities to clients who have historically been excluded from private or illiquid markets.
The CEOs of Blackrock, Bank of New York and Robinhood have all described tokenisation as a megatrend, a freight train and the standard upon which all assets will be represented.
The UK has a genuine chance to close the gap with global leaders in tokenisation – but that requires ambition.
The FCA’s framework must champion public-chain transparency, instant settlement and blockchain-enabled compliance rather than replicate the inefficiencies of the old financial system.