Tokenising UK Investment Funds: A New Era of Liquidity and Access for Investors

The UK's financial sector is undergoing a seismic shift as regulators and asset managers embrace blockchain technology to tokenize investment funds. This innovation promises to redefine liquidity, access, and efficiency in capital markets, creating new opportunities for both institutional and retail investors. By October 2025, an FCA announcement stated the Financial Conduct Authority (FCA) had taken a bold step, allowing asset managers to issue tokenized funds on public blockchains like Ethereum. This marks a pivotal moment in the UK's ambition to become a global leader in digital asset innovation.

The UK's Strategic Blueprint for Fund Tokenization

The UK's approach to fund tokenization is methodical and forward-looking. In late 2023, HM Treasury's Technology Working Group published an interim report outlining a staged implementation plan, in a Skadden report. Stage One focused on leveraging distributed ledger technology (DLT) for unit registers, enabling real-time sales and redemption transactions while retaining traditional settlement cycles, as noted in a Reed Smith summary. This hybrid model balances innovation with regulatory familiarity, ensuring a smooth transition for market participants.

By 2025, the FCA has expanded its vision, recognizing public blockchains as viable infrastructure for tokenized funds. This shift is driven by the UK's desire to attract a younger, tech-savvy investor base and to position itself as a hub for digital finance. According to Skadden, the UK's asset management industry—worth over £10 trillion—is uniquely positioned to benefit from tokenization due to its global reach and regulatory agility.

Real-World Case Studies and Market Developments

The UK's tokenization strategy is no longer theoretical. In June 2025, Baillie Gifford launched the first tokenized UK Open-Ended Investment Company (OEIC), marking a milestone in the sector, as detailed in a New York Fed analysis. Similarly, the UK UCITS-based Strategic Bond Feeder Fund became the first blockchain-native UCITS fund, approved by the FCA, according to a CoinTrust report. These projects demonstrate how tokenization can streamline operations, reduce administrative costs, and enhance transparency.

Notable tokenized money market funds, such as Franklin Templeton's FOBXX and WisdomTree's WTGXX, have also gained traction. These funds serve as reserve assets for decentralized finance (DeFi) platforms and collateral for derivatives transactions, bridging traditional and digital finance. As stated by the Investment Association, tokenized funds are now being explored in the FCA and Bank of England's Digital Securities Sandbox, with Ctrl Alt and SEI among the pioneers.

Impact on Liquidity and Access for Institutional Investors

Tokenization is unlocking unprecedented liquidity for institutional investors. Traditional fund structures often involve days-long settlement cycles and opaque redemption processes. By contrast, tokenized funds enable real-time transactions and programmable features, such as automated compliance checks. For example, secondary markets for fund tokens can emerge, allowing investors to trade shares instantly, bypassing the need for intermediaries.

Moreover, tokenization reduces the cost of managing large portfolios. A report by the New York Federal Reserve highlights that blockchain-based settlement can cut operational expenses by up to 40%. This efficiency is particularly valuable for institutional investors managing diverse, global portfolios. The FCA's roadmap also emphasizes simplified dealing frameworks, which could lower barriers for smaller asset managers to compete with industry giants.

Opportunities for Retail Investors in a Digitally Transformed Market

Retail investors are not left behind in this digital revolution. Tokenized funds democratize access to previously exclusive markets. For instance, fractional ownership of high-value assets—such as real estate or private equity—becomes feasible through tokenization. This aligns with the UK's goal of attracting younger investors, who are more comfortable with digital platforms and decentralized technologies.

Additionally, tokenized funds can integrate with DeFi protocols, offering retail investors yield-generating opportunities. For example, Circle and Hashnote's USYC token allows users to earn interest on stablecoins while maintaining exposure to a diversified portfolio. Such innovations could redefine passive investing, blending the best of traditional and digital finance.

Challenges and the Road Ahead

Despite the promise, challenges remain. Regulatory frameworks must evolve to address issues like investor protection and cross-border compliance. The FCA's staged approach mitigates risks but requires ongoing collaboration with market participants. Furthermore, public blockchain adoption hinges on scalability and energy efficiency, which projects like Ethereum's upgrades aim to resolve.

Conclusion

The UK's tokenization initiative is a testament to the power of blockchain to reshape finance. By enhancing liquidity, reducing costs, and broadening access, tokenized funds are creating a more inclusive and efficient market. For institutional investors, this means smarter portfolio management; for retail investors, it means unprecedented opportunities to participate in global markets. As the FCA continues to refine its roadmap, the UK is poised to lead the next wave of financial innovation—a future where digital and traditional finance coexist seamlessly.