Daily Vecsignal - Public Chain Funds: FCA Opens the Floodgates for Tokenized Asset Management

 May 01, 2026 | VECS News

The Financial Conduct Authority has officially released its final rules on fund tokenization effective April 30 2026, marking the first time a major European regulator has fully integrated distributed ledger technology into mainstream asset management regulation rather than confining it to experimental sandboxes . The policy statement known as PS26/7 allows authorized funds to deploy investor registers on public blockchain networks and issue fund shares across multiple blockchains simultaneously, a decision that fundamentally redefines the relationship between traditional finance and digital assets .

The new framework introduces an optional Direct to Fund model that enables investors to deal directly with funds rather than through intermediaries regardless of whether the fund uses traditional infrastructure or blockchain-based systems . This single-stage process removes the requirement for units to be issued to the fund manager before being transferred to unitholders, streamlining on-chain settlements and reducing operational friction. The FCA received 64 formal responses to its consultation paper CP25/28 which was first proposed on October 14 2025 and nearly all respondents supported the regulators approach to accelerating fund tokenization .

A pivotal technical clarification from the FCA addresses a long-standing industry concern about record-keeping requirements. The regulator confirmed that an on-chain record of transactions may be considered the primary books and records for unit deals and that firms do not need to maintain a full off-chain mirror of this information as long as appropriate resiliency plans are in place . This decision eliminates a significant operational burden that would have made public blockchain adoption prohibitively expensive for asset managers effectively greenlighting the use of networks like Ethereum Solana and other public ledgers for regulated funds.

Simon Walls the FCA executive director of markets stated that tokenization has the potential to drive fundamental changes in asset management with benefits for both the industry and consumers . The FCA has focused on delivering what the market has asked for a clear practical framework that provides confidence in how fund tokenization can operate within existing rules both now and into the future. John Allan from the Investment Association added that the FCA has produced detailed guidance providing confidence around public chain models where the right controls are in place alongside the use of digital cash tools for operational needs .

For cryptocurrency investors the implications extend far beyond regulatory comfort. The rules explicitly confirm that funds can use public permissionless blockchains for their operations. This means billions of pounds in managed assets could eventually be represented as tokens on networks that crypto investors already use. The FCA also noted that the relevant rules have supported the approval of the first UK UCITS tokenized fund opening the door for retail investor exposure to blockchain-based fund products within traditional investment wrappers .

The regulator has signaled its intention to push further into digital asset integration. The FCA plans to seek further opinions on the application of distributed ledger technology in wholesale financial markets later in 2026 and the complete UK regulatory framework for crypto assets is expected to be in place by October 2027 . Areas under consideration include the use of stablecoins digital cash and smart contracts in fund settlement representing a gradual but determined march toward fully on-chain asset management infrastructure.

Expert reactions have been measured but positive with several notable warnings. Amarjit Singh the EY UK and I digital assets leader welcomed the guidance but cautioned that real market movement requires close collaboration between government and industry to address operational realities including accounting tax prudential treatment and control frameworks . Globally the pace of innovation is accelerating with jurisdictions such as the United States and Singapore moving quickly and Singh emphasized that the UK must do the same to maintain competitiveness. Clear regulatory principles are an important step forward but progress will ultimately be defined by how effectively the ecosystem works together to implement fund tokenization in practice.

Christopher Collins a financial markets partner at Katten offered a consumer protection perspective noting that the use of public and private keys may be challenging or unsuitable for some consumers given the potential in crypto asset markets for an investor to be locked out of their digital wallet if they lose access to their private key . Collins also warned that any access point to the distributed ledger whether through a wallet or in direct dealings with a fund can be vulnerable. For crypto investors this underscores a critical reality: the same self-custody risks that exist today will apply to tokenized fund shares unless institutional custody solutions evolve rapidly to bridge the gap between regulated finance and decentralized technology .

The bottom line for crypto markets is a structural shift in demand dynamics. Tokenized funds create legitimate on-chain use cases backed by real-world asset management flows not just speculative trading. As the FCA continues its work toward a 2027 comprehensive crypto framework and as stablecoin integration progresses the distinction between traditional funds and crypto assets will continue to blur. For investors holding Ethereum-based tokens or assets tied to real-world asset tokenization this regulatory clarity from a major G7 economy represents one of the most significant institutional adoption catalysts since the launch of regulated futures markets.