FCA sets approach for direct dealing and tokenisation for UK fund management industry

The Financial Conduct Authority has finalised its approach to how fund managers can enable direct-to-fund dealing and use tokenised registers. The new rules and guidance enter into force with immediate effect. Firms should consider the new policy when they plan to adopt the new direct dealing model or launch a tokenised authorised fund.

The FCA’s policy statement (PS26/7) follows last year’s consultation paper (CP25/28). The FCA says that respondents to the consultation almost universally supported its proposals.

Finalised guidance on tokenisation of authorised funds

CP25/28 proposed guidance to support firms looking to operate a tokenised unitholder register.

Changes made since the consultation paper include:

• Allowing the on-chain record of transactions to be considered the primary books and records and not requiring firms to maintain a duplicate “mirror” of on-chain information,

• Adding guidance that functionality to freeze or unfreeze or effect a forced transfer of tokens could be used to remedy changes to a register, and

• Clarifying that units in a given class may be issued on multiple blockchains provided conditions are met.

A new direct dealing model

CP25/28 also proposed introducing a new direct-to-fund model. Under this model, the fund or its depositary, rather than the authorised fund manager, acts as principal in unit deals with unitholders. Respondents noted that direct dealing would be helpful for atomic settlement of new units.

The direct-to-fund model uses a specific bank account for payments to or from investors. The FCA has confirmed that cash held in such an issues and cancellations account should be considered scheme property. The cash in the account is not “scheme property in registered form” for the purposes of the FCA registration of title rules such as COLL 6.6.12 R.

The FCA has also strengthened its reconciliation requirements. An authorised fund manager must have effective controls over the operation of the issue and cancellation account, which includes running reconciliations daily, or as often as the fund deals. Any money received into an omnibus account must be allocated promptly and no later than five business days after receipt. If still unattributed after that point, the AFM must instruct it to be returned to the sender.

The FCA had proposed allowing firms to operate omnibus issues and cancellation accounts for umbrella schemes, subject to compliance with relevant legislation. The FCA is continuing to work with HM Treasury to clarify how that legislation applies to omnibus accounts. In the meantime, firms wishing to use omnibus accounts to support direct dealing schemes will need to receive legal advice assessing that the proposed operating model complies with the relevant laws on segregated liability.

Looking to the future

CP25/28 included a discussion of future tokenisation models. The FCA envisaged that, in the longer term, products, services and technological processes would be broken down into modular components. This “composability” would enable firms to offer services akin to individual portfolio management at retail scale.

In PS26/7 the FCA shares feedback from respondents on the discussion aspects of CP25/28. The FCA invites firms exploring tokenised portfolio management and composable finance to discuss these projects with them. The FCA also intends to seek views from firms on its digital assets roadmap later in 2026.