Tokenised Funds and the Future of Retail Investment: How UK Regulatory Support is Catalyzing Financial Inclusion and Innovation

The UK's embrace of tokenized funds marks a pivotal shift in the global financial landscape, positioning itself as a leader in leveraging blockchain technology to democratize access to capital markets. Regulatory innovation, spearheaded by the Financial Conduct Authority (FCA), has created a framework that balances investor protection with technological advancement, fostering a new era of financial inclusion. By 2025, the UK's strategic approach-rooted in collaboration, phased implementation, and international alignment-has already begun to reshape how retail investors engage with traditional asset classes.

A Regulatory Framework for Innovation

The FCA's proactive stance has been instrumental in removing barriers to tokenized fund adoption. In 2023–2024, the regulator confirmed that existing frameworks, such as the Collective Investment Schemes sourcebook (COLL) and the Client Assets sourcebook (CASS), are compatible with a "baseline model" of fund tokenization, according to a Skadden report. This model utilizes private, permissioned distributed ledger technology (DLT) to digitize the "unit register" for sales and redemptions, ensuring compliance while enabling operational efficiencies like real-time settlement and automated corporate actions, as set out by the FCA.

The FCA's collaboration with international regulators, including Singapore, Japan, and Switzerland through Project Guardian, underscores its commitment to harmonizing standards for tokenized assets, as reported in an FTAdviser article. This cross-border effort not only mitigates regulatory fragmentation but also positions the UK as a global hub for innovation. As stated by the FCA, the absence of "significant regulatory barriers" in the baseline model has encouraged firms to experiment within a controlled environment, accelerating the development of scalable solutions, as noted in the Skadden report.

Real-World Adoption and Retail Investor Access

The first tangible milestone came in June 2025, when Baillie Gifford launched the UK's first tokenized Open-Ended Investment Company (OEIC), signaling a breakthrough in mainstream adoption, according to the Investment Association. This initiative aligns with the UK government's broader strategy to modernize financial infrastructure, leveraging DLT to reduce administrative costs, enhance transparency, and streamline back-office operations, as described in a DailyCoin article.

For retail investors, tokenized funds offer unprecedented accessibility. Fractional ownership of high-value assets, 24/7 secondary market transfers, and instant collateralization capabilities lower entry barriers, particularly for younger, tech-savvy demographics, according to an industry report. According to that report, tokenized financial assets could reach $600 billion in assets under management by 2030, driven by demand for liquidity and programmability. The UK's focus on tokenizing mainstream assets-such as equities and bonds-rather than volatile cryptoassets further enhances trust and adoption among risk-averse investors, as the Skadden report argues.

Challenges and the Path Forward

Despite progress, challenges remain. The need for additional registrations under the UK's Money Laundering Regulations (MLR)-such as "cryptoassets exchange providers" or "custodian wallet providers"-has slowed adoption for some firms, according to the Skadden report. However, the FCA is actively exploring streamlined registration processes to address these hurdles, as the regulator has indicated. Long-term success will also depend on legislative updates, such as potential amendments to the Companies Act 2006, to fully realize the potential of tokenization, the Skadden report says.

Conclusion

The UK's regulatory leadership in tokenized funds is not merely a technological experiment but a strategic move to redefine financial inclusion. By prioritizing innovation within a robust compliance framework, the country is setting a precedent for how traditional finance can evolve to meet the needs of a digital-first generation. As tokenized funds mature, their ability to democratize access to capital markets-while maintaining the integrity of existing systems-will likely cement the UK's role as a global pioneer in this transformative space.