How Does the UK Regulate Tokenized Funds?
The UK regulates tokenised funds at the fund level rather than by licensing venues. The FCA's Policy Statement PS26/7, published 30 April 2026, confirms that an on-chain record of transactions may serve as the primary books and records for unit deals, permits permissionless public networks subject to resilience and AML controls, and introduces an optional Direct to Fund dealing model that removes the manager's float. It took effect immediately, with no transitional period. Alongside it, HSBC became the first firm live in the Bank of England and FCA Digital Securities Sandbox, and a digital gilt is expected by Q1 2027. This guide covers what the rules permit, how the UK route differs from the EU and US approaches, and the settlement question the UK has not yet answered.
TL;DR — Key Takeaways
- ✓The Core Rule: PS26/7 (30 April 2026) lets an on-chain record be the primary books and records for unit deals — not a copy of an off-chain register. Effective immediately, no transitional period.
- ✓Public Chains Allowed: Permissionless networks including Ethereum Layer 1 are permitted, subject to operational resilience, data privacy, and AML controls.
- ✓Direct to Fund: An optional model where the fund or depositary acts as principal, replacing the manager's float with single-stage issuance and cancellation. Open to all authorised funds.
- ✓Sovereign Debt: HSBC won the DLT tender in February 2026 and went live first in the Digital Securities Sandbox. DIGIT is expected by Q1 2027 — the first G7 sovereign debt on DLT.
- ✓Still Unsolved: Central bank money settlement. The Bank of England targets a synchronisation service by 2028; until then the cash leg is a private liability.
The UK Regulated the Fund, Not the Venue
PS26/7, published by the Financial Conduct Authority on 30 April 2026, brings tokenised authorised funds inside the UK regulatory perimeter by changing what a fund may treat as its register and how it may deal in units. There is no issuance cap and no separate infrastructure licence. It took effect immediately, with no transitional period.
That choice of level is the whole story. Two other major jurisdictions answered the same question differently in the same period, and comparing them shows how much the framing determines the outcome. The EU built a venue licence and got three authorised infrastructures. The US cleared a depository to publish on-chain representations while keeping legal title in the depository. The UK left the market structure alone and changed a recordkeeping rule inside the fund.
| Jurisdiction | What is regulated | Where the legal record sits |
|---|---|---|
| UK (PS26/7) | The fund's register and dealing model | On-chain, as primary books and records |
| EU (DLT Pilot Regime) | The trading and settlement venue | On the licensed DLT infrastructure |
| US (DTC pilot) | A depository accommodation, by no-action letter | Off-chain, inside the regulated depository |
Read against the EU DLT Pilot Regime, the contrast is instructive: a venue licence imposes a permanent authorisation cost for a provisional permission, while a recordkeeping rule costs an issuer nothing until it chooses to use it.
The On-Chain Register Becomes the Record, Not a Copy
The FCA confirmed that an on-chain record of transactions may be treated as the primary books and records for unit deals. This is the substantive change. Most institutional tokenisation to date has published a mirror — the ledger shows a representation while an off-chain register remains authoritative, which means reconciliation between the two is a permanent operational obligation.
Making the on-chain record primary removes that obligation by removing the second record. It also relocates the risk. When the ledger is the register, a defect in the ledger is a defect in the register, and there is no off-chain copy to fall back on. That is why the rule carries two conditions that read as technical detail but are the operative constraints: the fund manager retains ultimate authority, and must be able to amend the record without third-party consent.
“An on-chain record of transactions may be treated as the primary books and records for unit deals” — with the fund manager retaining ultimate authority and the ability to amend the record without third-party consent.
— FCA Policy Statement PS26/7, Progressing Fund Tokenisation, 30 April 2026
Key Insight
The amendment requirement and the permission to use permissionless networks pull against each other, and reconciling them is the real engineering problem PS26/7 sets. A public chain's defining property is that no single party can unilaterally alter state; the FCA requires that the manager be able to do exactly that to the fund's register. The two are compatible only if the register is a contract whose administrative authority is held by the manager rather than raw token balances. Firms that read “public chains are allowed” without reading the amendment condition will build something that cannot satisfy the rule.
PS26/7 also allows units in a single class to operate across multiple blockchains, provided the underlying rights remain identical — a multi-chain allowance that only makes sense because the rights, not the tokens, define the class.
Direct to Fund Removes the Manager's Float
Direct to Fund is an optional dealing model in which the fund or its depositary acts as principal in unit transactions instead of the asset manager. It replaces the manager's float with single-stage issuance and cancellation of units, and it is available to all authorised funds rather than only tokenised ones.
The float is capital the manager holds to bridge the timing gap between investor orders and fund-level subscriptions. Removing it takes the manager's balance sheet out from between the investor and the fund, which shortens the chain of claims and removes a source of counterparty exposure that most investors never priced because they never saw it. Note that D2F is not a tokenisation rule — it is a dealing reform that tokenisation made worth doing, and the FCA opened it to every authorised fund accordingly.
1. Fund or depositary as principal
The counterparty to a unit deal becomes the fund itself or its depositary, rather than the manager acting in a principal capacity.
2. Single-stage issuance and cancellation
Units are created or cancelled in one step against the investor order, instead of being bridged through inventory the manager holds.
3. No manager float required
The capital previously committed to bridging order timing is released, and the manager's balance sheet exits the transaction chain.
4. Not restricted to tokenised funds
Any authorised fund may adopt D2F, which is why it should be evaluated on dealing economics rather than as part of a tokenisation decision.
For managers already weighing a tokenised vehicle, this interacts directly with the structuring choices set out in tokenized fund structures on Layer-0 protocols.
The Sandbox and the Digital Gilt
The Digital Securities Sandbox, opened jointly by the Bank of England and the FCA on 30 September 2024, lets firms issue, trade, and settle securities on distributed ledger where existing rules would otherwise block it. HSBC became the first firm approved to go live, operating HSBC Orion as a digital securities depository, and won the DLT services tender for the digital gilt in February 2026.
DIGIT, the Digital Gilt Instrument, is expected by the first quarter of 2027 and would make the UK the first G7 country to place sovereign debt on a distributed ledger. HSBC and LSEG have signed a memorandum of understanding to deliver a bilateral digital securities depository link, and PS26/7 permits authorised funds to hold DIGIT alongside conventional eligible assets. Sovereign issuance matters here beyond its size: it produces a high-grade collateral instrument that exists natively on ledger, which is the missing input for most tokenised collateral designs.
| Date | Milestone |
|---|---|
| 30 Sep 2024 | Digital Securities Sandbox opens (Bank of England + FCA) |
| Feb 2026 | HSBC awarded the DLT services tender for the digital gilt |
| 30 Apr 2026 | PS26/7 published; effective immediately, no transitional period |
| 18 May 2026 | FCA and Bank of England joint Call for Input on the Future of Tokenisation |
| 3 Jul 2026 | Call for Input response deadline |
| By Q1 2027 | DIGIT expected — first G7 sovereign debt on DLT |
| By 2028 | Bank of England targets a synchronisation service for central bank money settlement |
The Cash Leg Is Still a Private Liability
The Bank of England aims to deliver a synchronisation service by 2028 enabling atomic settlement against central bank accounts. Until then the cash leg settles in commercial bank money, tokenised deposits, or qualifying stablecoins — each of which is a private issuer's liability rather than the central bank's. The Digital Securities Sandbox already permits tokenised bank deposits for on-chain settlement and is being extended to certain stablecoins.
This is the same gap the EU has not closed, and it is worth being precise about what it is and is not. Atomic settlement solves timing: the security and the cash move together, or neither moves. Central bank money settlement solves credit: the cash leg is an obligation of the issuer of the currency, so it cannot default. A tokenised deposit delivers the first and not the second. That is a real improvement over a coordinated two-leg settlement, and it is not finality in the sense the conventional settlement chain provides. The 2028 target is when the UK expects to have both.
One further detail from the Call for Input is easy to miss and matters to custodians: the FCA confirmed it will not apply the proposed CASS 17 safeguarding framework to specified investment cryptoassets. Firms that assumed CASS 17 would govern their custody model need to re-check which regime actually applies, using the analysis in institutional RWA custody solutions.
Who the UK Route Suits — and When It Breaks
The UK route suits managers of authorised funds who want on-chain recordkeeping without acquiring an infrastructure licence, and who can satisfy the manager-authority condition on whatever network they choose. It is a poor fit for firms whose real objective is a trading venue, because PS26/7 does not license one.
Who it's for
- UCITS management companies and UK AIFMs
- Managers wanting a single primary register
- Funds intending to hold DIGIT when it issues
- Firms evaluating D2F on dealing economics
Who it's NOT for
- Firms whose goal is a licensed trading venue
- Structures needing central bank money settlement today
- Managers unable to hold unilateral amendment authority
- Non-UK funds expecting UK rules to travel with them
When it breaks
- Public-chain design that cannot honour the amendment rule
- A ledger defect with no off-chain register to fall back on
- Assuming a tokenised cash leg equals settlement finality
- Treating CASS 17 as governing cryptoasset safeguarding
The no-transitional-period point deserves attention from anyone mid-build. PS26/7 applied on publication, so a fund launching now is launching into final rules rather than a consultation draft — which is an advantage over designing against the EU's proposed thresholds, where the numbers stay negotiable until trilogues conclude.
How Blockmaze Handles a Primary On-Chain Register
Blockmaze structures a primary on-chain register around the condition PS26/7 actually turns on: the manager must hold amendment authority over the record without third-party consent, including on a permissionless network where that authority is not the default.
Manager Amendment Authority
Administrative rights over the register are held at the protocol layer and exercisable without third-party consent, so the manager-authority condition holds on public and permissioned networks alike.
Amendments Recorded as Events
Every correction to the register is written with its reason and authorising party, so a primary record with no off-chain copy still carries an auditable history of its own changes.
Class Rights Across Chains
Unit rights are defined once and enforced identically wherever units are held, supporting the multi-chain single-class allowance without letting rights diverge by network.
Settlement Asset Recorded
Whether a leg settled in commercial bank money, a tokenised deposit, or a qualifying stablecoin is recorded per transaction, so the credit exposure carried before 2028 is visible rather than assumed away.
The enforcement model underneath is the one described in smart contract compliance at the Layer-0 level — applied to a register that is now the fund's legal record rather than a reflection of one.
Tokenising a UK Authorised Fund?
Blockmaze provides the compliance layer for primary on-chain registers — manager amendment authority, audited amendment history, consistent class rights across chains, and per-transaction settlement asset records.
Frequently Asked Questions
What is FCA Policy Statement PS26/7?
PS26/7, Progressing Fund Tokenisation, was published by the Financial Conduct Authority on 30 April 2026 and finalises rules bringing tokenised authorised funds inside the UK regulatory perimeter. Its central provision is that an on-chain record of transactions may be treated as the primary books and records for unit deals, rather than as a copy of an off-chain register. It applies to UCITS management companies, UK AIFMs, depositaries, portfolio managers, platform providers, custodians, and stablecoin issuers, and it took effect immediately with no transitional period.
How is the UK approach different from the EU DLT Pilot Regime?
The UK regulates the fund, while the EU regime licenses the venue. PS26/7 changes what an authorised fund is permitted to treat as its register and how it may deal in units, with no issuance cap and no separate infrastructure licence. The EU DLT Pilot Regime instead creates three market infrastructure licences with a per-platform issuance cap, currently EUR 6 billion and proposed to rise to EUR 100 billion. One asks whether the fund's recordkeeping may be on-chain; the other asks whether a venue may combine trading and settlement. An issuer active in both has to satisfy both questions separately.
What is the Direct to Fund (D2F) model?
D2F is an optional dealing structure in which the fund or its depositary, rather than the asset manager, acts as principal in unit transactions. It replaces the manager's float — capital the manager holds to bridge the gap between investor orders and fund-level subscriptions — with single-stage issuance and cancellation of units. Removing the float removes the manager's balance sheet from between the investor and the fund. D2F is available to all authorised funds, not only tokenised ones, so it is a dealing reform that tokenisation made worth doing rather than a tokenisation rule.
Can a UK authorised fund use a public blockchain?
Yes. PS26/7 permits natively permissionless public networks, Ethereum Layer 1 among them, provided the firm maintains adequate operational resilience, data privacy, and anti-money-laundering controls. This is more permissive than the private-chain assumption common in institutional tokenisation. The condition that matters most in practice is the requirement that the manager retain ultimate authority and be able to amend the register without third-party consent — on a permissionless network that has to be engineered deliberately, because the default property of such a network is that no single party can unilaterally alter state.
What is DIGIT and when does it arrive?
DIGIT is the UK's Digital Gilt Instrument, a pilot issuance of sovereign debt on distributed ledger. HSBC won the DLT services tender in February 2026 and became the first firm approved to go live in the Digital Securities Sandbox, operating HSBC Orion as a digital securities depository. HSBC and LSEG signed a memorandum of understanding for a bilateral digital securities depository link. DIGIT is expected by the first quarter of 2027, which would make the UK the first G7 country to place government debt on a distributed ledger. Authorised funds may hold DIGIT under PS26/7.
What has the UK not solved yet?
Central bank money settlement. The Bank of England aims to deliver a synchronisation service by 2028 that would enable atomic settlement against central bank accounts — meaning that until then, the cash leg settles in commercial bank money, tokenised deposits, or qualifying stablecoins, all of which are a private issuer's liability rather than the central bank's. The Digital Securities Sandbox already permits tokenised bank deposits for on-chain settlement and is being extended to certain stablecoins. That is a workable interim answer, not a final one, and it is the same unresolved question the EU faces.
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