Tokenised Funds in the UK: Models, Regulation and What Comes Next

A tokenised fund is a simple idea: the register of who owns what moves from a private database onto a shared blockchain. The technology has been ready for some time; what has been missing is market infrastructure and regulatory confidence. The launch of Baillie Gifford’s “BAGEY” shows that the latter has now arrived From October 2027, the new FCA regime will treat a tokenised fund unit in much the same way as a conventional one. These show that tokenisation has moved from an experiment into a genuine option, though one the regulator intends to keep closely supervised.

Why Tokenise?

The benefits of tokenisation are clear in operations and distribution: It can make a fund cheaper and faster to run, and opens more channels of distribution. A shared ledger spares the manager, the administrator and the investor from forever reconciling three versions of the same record. It can compress settlement, eventually letting cash and units change hands in a single motion. It also opens fresh distribution, permits fractional holdings, supports a secondary market in units, and allows idle holdings to be pledged as collateral.

Tokenisation will be most relevant for funds that are actively traded. The more a fund's units are bought, sold, settled and reconciled, the more firms will benefit from a tokenised operating model. Whilst money market funds (MMFs) are the most obvious candidates for tokenisation (indeed, many of the early examples of tokenised funds have been MMFs, such as Franklin Templeton's on-chain money funds (built on its Benji platform) and BlackRock's tokenised liquidity fund, BUIDL), there are no limits on the underlying asset class in which a tokenised fund can invest (subject of course to regulation).

Models for Tokenisation

There are three major models in the market for tokenised funds:

Tokenised Register

The fund places its register of ownership onto a distributed ledger (a blockchain). Each token functions as a record of ownership of an individual fund unit, with the manager having the power to correct, freeze and override the registration of any record. The Investment Association's Technology Working Group identified this model as the “Blueprint” for UK authorised funds: a normal FCA authorised fund holding normal assets, cash settling off-chain as usual, and only the register moving onto a private, permissioned chain that remains centrally controlled. The FCA specifically blessed this structure in recent consultation papers (see below).  

Wrapper Tokens

A third party issues a token which represents a beneficial interest in an existing fund. For example, the FCA-regulated exchange Archax has made a number of funds available this way (including MMFs). The tokens sit outside of the fund, which is unchanged by the addition of a token layer. The third party issuer, as opposed to the fund manager, runs the token layer and assumes thereby the associated regulatory obligations. This model provides token holders with a flexible range of de-fi investment options, not least because of its cross-chain interoperability.

Native Tokenisation

The most ambitious (but arguably the most transformative) approach. Under this model the token itself is the unit of the fund.  This means that the token is the thing of value, rather than merely evidence of who has the right to a different thing of value. A native token of such a fund can operate as a smart contract with features such as: 

• automated lifecycle events (distributions, equalisation and corporate actions);
• atomic settlement (cash and fund units can be coded to move together in a single step, removing the gap between trading and settlement);
• built in compliance (eligibility checks, transfer restrictions and sanctions controls are embedded in the token); and
• programmability (the fund unit can plug into other on-chain processes, such as being posted automatically as collateral). 

These features will significantly reduce the burden of fund administration. There are already a number of live structures of this type, most notably in Luxembourg, whose blockchain laws give native issuance a settled legal base and allow issuance without a traditional transfer agent or depositary. Franklin Templeton, Amundi and BNP Paribas Asset Management all have natively tokenised MMFs. And of course there is Ballie Gifford’s BAGEY.

UK Regulation 

The new regime for digital assets

The current UK regulations do not distinguish between digital assets that are backed by real-world assets and those that are not. The practical consequence is awkward: an issuer of a tokenised fund unit is likely to have to navigate regulatory requirements that bear little functional resemblance to their risk profile or business model.

This changes under the new cryptoasset regime, which comes into force in October 2027. A digital asset that represents a real-world asset, such as a security or a fund interest, is treated as a specified investment under FSMA, in the same way as its off-chain equivalent. A tokenised fund unit is then treated like a conventional fund unit.

What the regime adds is a dedicated way of looking after these assets. Safeguarding tokenised units, where they are securities or contractually based investments, becomes a recognised and regulated activity in its own right: one that is not contrasted unfavourably with traditional custody. So on-chain fund units are not a new asset class to be feared. They are ordinary fund units under FSMA, with a purpose-built custody rule of their own.

Native Tokenisation is possible 

The FCA's consultation paper (CP25/28) and the policy statement that followed (PS26/7) give guidance for the register model (the industry "Blueprint") under which the fund keeps its register on-chain, but the manager retains authority over the register with the power to correct, freeze and force transfers. The FCA describes this control as “an important consumer and market integrity expectation” (PS26/7 para 2.4).

More advanced strategies such as native tokenisation are also possible. Under English law, units in a fund are creatures of the fund's own constitution, which defines a unit and its functionality.  Crucially, it can provide that title to each unit is transferred by means of transferring the unit itself on a given system (usually a distributed ledger). That each unit can act in this way – essentially as a bearer asset in which property rights can vest – has been recently acknowledged by the Property (Digital Assets etc) Act 2025. 

The limits of Native Tokenisation

The barrier to native tokenisation in its fullest sense is not therefore the legal nature of the units themselves but the regulatory requirements, including managers retaining control over the register and operationalising the model. Taken to its logical conclusion, native tokenisation would make permissionless circulation possible, with units passing freely between wallets the manager has never vetted.

In practice, the FCA requires UK managers to keep authority over the register, with the power to correct errors, freeze holdings, force transfers and give effect to court orders. It also expects appropriate KYC and AML checks at the key compliance touchpoints. The most realistic UK structure is therefore a near-native unit that still carries freeze and forced-transfer powers and, at the least, identity checks at issue, redemption and upon any transfer. The unit can live on-chain; it cannot yet roam there unsupervised.