In recent months, the concept of tokenisation has moved from the fringes of fintech into the mainstream conversation among UK investors, regulators, and asset managers. Put simply, tokenised funds use blockchain or other distributed ledger technologies so that ownership rights in funds are represented by digital tokens. This opens up many possibilities — and also raises key questions.
What’s Driving the Tokenisation Trend
Several forces are pushing the UK toward embracing tokenisation:
- Regulatory interest: The Financial Conduct Authority (FCA) has proposed allowing tokenized funds on public blockchains. This marks a shift from the earlier model, which largely relied on private or permissioned chains.
- Demand from younger investors: Digital-native investors are more comfortable with assets represented digitally — they expect speed, transparency and low friction. Tokenized funds promise reduced settlement times, greater accessibility, and potentially lower costs.
- Efficiency and innovation: Blockchain-based structures can streamline processes like trades, record-keeping, compliance, and reporting. They can also enable fractional ownership — letting investors access portions of expensive assets which were previously out of reach.
Opportunities and Risks
Opportunities:
- Democratizing investment: More people — even with smaller capital — can participate in funds previously dominated by institutional players.
- New asset classes: Real estate, infrastructure, or commodities could be tokenised, broadening diversification choices.
- Competitive edge: UK’s position as a financial centre could be strengthened if it becomes a hub for regulated tokenised fund products.
Risks & challenges:
- Regulatory compliance & legal clarity: Issues around investor protection, governance, data privacy, and which laws apply need clear resolution.
- Technology risks: Blockchain networks still face issues like scalability, security vulnerabilities, and interoperability.
- Market adoption: Traditional investors may be slow to trust new digital structures — so education, transparency, and credible early examples are vital.
What Investors Should Do Now
For those interested in this space, here are practical steps:
- Monitor FCA proposals and consultations: Watch rule changes and guidelines for tokenised funds. Understanding regulation early gives advantage.
- Do due diligence: For any fund offering tokenisation, ask about custody, audit, legal structure, risk management.
- Diversify carefully: Tokenised products can complement traditional investments but shouldn’t replace core holdings without understanding risks.
- Keep digital security in mind: Using trusted platforms, secure wallets, and understanding how tokens are stored or traded matters.