FCA should seize the tokenization opportunity

November 5th FCA should seize the tokenization opportunity

Jesse Knutson, Head of Operations, Bitfinex Securities

This article was originally posted on Money Marketing.

To maximize the potential of tokenization in this area, the FCA needs to ensure that its policy framework is not constrained by inefficiencies.

The Financial Conduct Authority (FCA) recently announced its latest consultation on the tokenization of funds in asset management. This is an important step towards moving the UK closer to a digital-first financial system.

For the wealth management industry and the advisors who support it, this should be seen as the first significant opportunity to reshape the UK financial system and move towards a digital-first future.

Describing tokenization as a “key element of the future of financial services” in its latest proposals, it is clear that the UK regulator is serious about improving the efficiency, transparency and competitiveness of financial markets.

However, to unlock the potential of tokenization in the sector and catch up with global leaders in technology, the FCA needs to ensure that its policy framework is not constrained by the inefficiencies of the traditional asset management sector.

What Tokenization Actually Means

Traditional finance has long relied on layers of intermediaries to perform basic functions such as payment, custody, record-keeping, and reconciliation.

Each layer adds charges, delays, and opacity. Investors struggle to understand where their assets are stored or how trades are flowing through the system in real time.

By natively recording assets and ownership on a public blockchain – a decentralized digital ledger that can verify, timestamp, and permanently store transactions without a central authority – tokenization has the potential to radically improve transparency, efficiency, and investor access.

"This is an exciting chance for the UK to position itself at the forefront of the transition toward digital markets."

If UK institutions, regulators and technology providers can work together to create a trusted and interoperable framework for tokenization, it will actually be a win-win for everyone involved.

Funds can issue and redeem units in real-time, track asset flows with full transparency, and automate compliance checks directly on-chain. Clients and advisors get an always-on, verifiable view of their holdings and valuations, improving reliability and reporting accuracy.

For regulators, tokenization enables ongoing data-driven oversight rather than retrospective audits, and for asset managers raising capital, it provides access to new investor bases, particularly individual participants and those in emerging markets.

These investors will have access to UK management, bringing more capital to the industry and accessing investors that were previously out of reach.

FCA Opportunity

The FCA talks represent an exciting opportunity for the UK to catch up with the global transition to digital markets and position itself at the forefront of it.

Other jurisdictions have already taken decisive action on this. For example, the EU’s Cryptoassets Market Regulation (MiCA), which provides a comprehensive framework for tokenized assets.

The UK has the potential to match and even exceed these efforts, but only if the policy framework focuses on transparency, efficiency and innovation rather than fitting traditional models.

Blockchain-first approach

The FCA’s consultation rightly recognizes the need to support innovation in asset management.

However, to deliver on that promise, the regulatory framework for operating tokenized funds and “direct to funds” (D2F) transactions must remain focused on blockchain principles, rather than protecting existing interests.

Therefore, regulators should encourage public chain deployment of tokenized assets while setting robust standards for compliance, identity verification, and data protection. The technology already exists to make this happen. All that is needed is legislation and adoption.

"If the FCA designs a policy that prioritises open, blockchain-based systems, it will not only improve efficiency, but also democratise access."

A truly tokenized financial system enables instant payments where ownership and payment are transferred on-chain simultaneously. This eliminates the delays and counterparty risks that plague traditional post-trade processes.

Self-custody is often misunderstood as a threat to investor protection. In fact, blockchain technology enables programmable compliance, allowing assets to be transferred only between approved wallets.

In a whitelisted ecosystem, the risk from hacking is almost non-existent and security and regulatory oversight are ensured without sacrificing efficiency.

Opportunity to rebuild market infrastructure

Tokenization also provides an opportunity to rethink the role of intermediaries in asset management. Payment desks and brokers manage the friction that blockchain eliminates.

This does not mean that all intermediaries will disappear, but their functionality may evolve. Market participants can focus on value creation and advisory expertise rather than manual reconciliation and compliance overhead.

If the FCA designs policies that prioritize open, interoperable blockchain-based systems, it will not only improve efficiency but also democratize access.

"The UK has a genuine chance to close the gap with global leaders in tokenisation – but that requires ambition."

Smaller asset managers, platforms and advisors will be able to compete on a more level playing field, offering new investment opportunities to clients who have traditionally been excluded from private and illiquid markets.

The CEOs of BlackRock, Bank of New York, and Robinhood have all described tokenization as a megatrend, a freight train, and the standard by which all assets are expressed.

The UK has a real opportunity to close the gap with world leaders in tokenisation, but this will require ambition.

The FCA framework needs to champion public chain transparency, instant payments, and blockchain-enabled compliance, rather than recreating the inefficiencies of the old financial system.