Opinion by Allan Lane, CEO Algo-Chain
Fund tokenization has been five years away for about a decade. Then, on 30 April 2026, it quietly stopped being a future technology and became a regulated one. The FCA's Policy Statement PS26/7 took effect with immediate force, formally bringing tokenized funds inside the UK's existing regulatory perimeter. The regulator's message was unambiguous: tokenization is no longer a parallel experiment - it's the operating model UK asset management is moving toward.
While some still see tokenization as just another wrapper, we see it as a fundamental leap forward in how wealth management operates. PS26/7 confirms the industry's Blueprint model, allowing on-chain records to serve as the primary books for unit deals, and introduces an optional Direct-to-Fund (D2F) dealing model that lets investors transact directly with the fund itself. Together, these changes move us away from fragmented legacy systems and toward a more streamlined, transparent structure.
FCA Consultation Paper - Progressing Fund Tokenisation
The Power of the Programmable Register
Tokenization doesn't change what you own - your strategic asset allocation and ETF selection remain the core of your value proposition. Instead, it revolutionizes how you own it. By moving from manual, disconnected records to a digital, programmable register, the industry unlocks several key advantages:
- Real - Time Certainty: The end of the T+2 waiting game. Tokenization enables near-instantaneous reconciliation and, where the right rails are in place, atomic settlement, providing a definitive source of truth at any second of the day, not at the end of the next business cycle.
- Operational Excellence: Automated smart contracts handle the heavy lifting of dealing instructions, ownership transfer, and corporate actions. Manual reconciliation between platform, transfer agent, and custodian - a process that, in 2026, still depends on people emailing each other spreadsheets - collapses into a single shared register.
- Institutional-Grade Governance: Every transaction is etched into a secure, immutable ledger. The audit trail is materially superior to traditional spreadsheets, CSV exports, or fragmented platform records. The FCA explicitly contemplates on-chain records as primary books, provided firms maintain appropriate resilience plans.
Inside the Dealing Workflow: What T+0 Actually Means
To see why this matters in practice, it helps to look at how a fund deal works today versus how it can work on a tokenized register. Under the traditional model, dealing runs on a single daily window. Orders submitted before a fixed cut-off - typically noon - receive that day's price, with the NAV struck after market close. The units and the cash then take another two business days to change hands. During that T+2 gap, multiple parties - platform, transfer agent, depositary, custodian - each maintain their own version of the trade on their own systems and reconcile after the fact. The reason this still takes two days, in 2026, isn't a technical limitation. It's institutional muscle memory.
A tokenized fund running on the Blueprint model can compress that cycle dramatically. The most consequential change is atomic settlement: where digital cash is available on the same rails, the unit token and the cash token swap in a single, indivisible transaction. There is no settlement window, no failed trade exposure, and no reconciliation lag. The register updates the moment the deal executes. Three practical consequences are worth flagging:
- Dealing windows become more flexible. A fund that today strikes a NAV once a day could, in time, support multiple intraday strike points without a proportional increase in operational load because the work that used to require manual reconciliation is now executed by smart contracts.
- Liquidity management gets sharper. Fund managers gain real-time visibility into subscription and redemption flows rather than waiting for end-of-day aggregates. Cash buffers held purely to absorb settlement-timing risk can shrink, reducing cash drag on performance.
- Stress resilience improves. During events like the 2022 LDI episode, where forced gilt sales amplified a downward price spiral, faster settlement and tokenized MMF units that can serve as collateral materially reduce the friction that turns liquidity events into systemic ones. The FCA cites this dynamic explicitly in its policy paper.
It's worth being clear-eyed about the transition. True T+0 requires a credible on-chain cash leg, whether for tokenized commercial bank deposits, regulated stablecoins, or eventually wholesale central bank digital cash. The FCA has left the door open via its waiver regime, but the full benefit arrives in stages. The Direct-to-Fund model is a separate reform: it streamlines who an investor deals with (the fund itself, not an intermediary chain) and works for both conventional and tokenized funds. The two changes reinforce each other but solve different problems.
A Framework Built for the Next Cycle
Most firms have spent the last decade perfecting portfolio construction. Rather fewer have spent it perfecting the plumbing that delivers it. That gap is about to matter more than it used to. The next competitive edge in wealth management won't come from finding a niche ETF or shaving another basis point off a passive sleeve. It will come from operational agility: the ability to implement, monitor, and adjust portfolios with the same precision used to design them.
Tokenization bridges the gap between disciplined portfolio design and institutional-grade control. It allows model portfolios to be treated as truly integrated systems where allocation, implementation, and monitoring happen in perfect sync rather than as instructions handed off to a chain of intermediaries, each running their own ledger and reconciling after the fact.
The FCA's longer-term roadmap - moving from tokenized funds to tokenized assets and, eventually, tokenized cash flows - points toward what it now describes as composable finance: modular, DLT-based investment processes that can be assembled and reconfigured without rebuilding the plumbing each time. The phrase is awkward; the idea is not. And it isn't a 2030 thesis either, it's a direction of travel the regulator has already committed to refining through further consultation on DLT in wholesale markets later this year.
From Theory to Adoption
This is no longer hypothetical. Baillie Gifford launched the first tokenized UK OEIC in mid-2025. Federated Hermes tokenized European money market funds, including the first UK-domiciled TMMF, later the same year. Aviva began a fund tokenization project with Ripple in early 2026. The Investment Association's IF3 Lab has become the focal point for industry-led work on tokenized fund and asset infrastructure. Each of these moves signals the same thing: the firms positioning themselves for the next decade are doing the integration work now, not waiting for a starting gun that has already sounded.
Our Tokenisation Readiness Framework
We're not pretending to have a tokenized model portfolio ready to ship tomorrow. Like the rest of the industry, we are preparing and the honest position is that the firms doing this seriously will publish their thinking before they publish their product. What we are committing to publicly is the framework our preparation follows: three pillars we believe will define the operating model the tokenized era demands.
· Unified Truth. Seamless synchronization between platform records and the digital register, with a clear hierarchy of authority so there is never ambiguity about which version of reality is canonical.
· Efficient Execution. Automated, transparent dealing workflows that eliminate the black box of traditional settlement, including readiness for the D2F model where appropriate, and the ability to run alongside conventional unit dealing during the transition.
· Proactive Oversight. A governance model where operational, technology, and counterparty risk are managed with the same rigor as market risk, supported by the resilience planning the FCA now expects of firms running on-chain registers.
Building toward these pillars now, rather than retrofitting them later, is the discipline we believe will distinguish the firms that lead the next cycle from those that scramble to catch up.
What This Means for Your Portfolio
Step back from the plumbing for a moment. The truth is that most of this happens out of sight - and frankly, that's the point. The dream of any back-office reform is that the front office never has to think about it. You don't see the register, the smart contract, or the settlement instruction, any more than you see the SWIFT message that moves a bank transfer today. But you do see the consequences.
When you redeem from a tokenized holding, the cash arrives faster and with less risk of administrative delay. When your portfolio is rebalanced, the trades execute and settle on a tighter, more predictable timetable - which means the portfolio you actually own tracks more closely to the portfolio that was designed for you. When markets are under stress, your fund manager works from cleaner, real-time information about flows, rather than from estimates that are hours or days old.
Over time, the savings from reduced reconciliation work, fewer failed trades, and lower cash buffers don't stay locked inside the operations function. They flow through to the things that matter to a long-term investor: tighter tracking, lower frictional cost, and a clearer line of sight between what your statement says and what you own.
None of this changes the investment thesis behind your portfolio. The asset allocation, the manager selection, the long-term plan - those are unchanged. What changes is the confidence with which that plan is executed on your behalf.
The Dividing Line
The industry is dividing between those clinging to inherited, manual infrastructure and those embracing the efficiency of the digital age. Tokenization is the catalyst, providing the transparency and speed that modern investors - and increasingly, modern regulators - expect. The firms that will lead the next cycle aren't those waiting for the technology to mature, and they aren't those rushing to claim it before they've built it properly. The technology has matured. The regulatory framework has arrived. What remains is the operational discipline to use both - and that's the work we're doing now.
Allan Lane, www.algo-chain.com
