UK must move fast to adopt tokenised funds
Jamie Marshall says we have a chance to steal a march on global competitors
Scotland has a long, established history of innovation within the investment fund sector, a tradition that continued in June 2026 with the launch of the first publicly available tokenised UK authorised bond fund by Scottish-based fund manager Baillie Gifford, advised by CMS’s Edinburgh-based authorised funds team.
Tokenised funds are attracting increasing attention across the global funds industry, and present a significant opportunity for the UK’s fund management sector. Their early adoption could be a key driver in further distinguishing the UK as a global market leader and, in Scotland, supporting the strategic ambition to grow the sector to £1 trillion by 2030.
A tokenised fund is most commonly understood as one in which the investor’s share or unit is created as, represented by or turned into a digital token that is recorded using distributed ledger technology (DLT), such as blockchain. Ownership of the fund’s units is recorded autonomously on a decentralised, programmable and cryptographically secure database, using smart contracts.
The potential benefits of using DLT and smart contracts include automation of many back-office operational functions, and more efficient sharing of information between fund operators, their service providers, distributors, and investors. A more efficient fund is (in principle) a cheaper fund, meaning tokenised funds may in time have a competitive advantage against conventional ones.
Tokenised funds could also open up new distribution channels, such as digital assets platforms; engage younger investors; further democratise investment by enabling smaller investment amounts; and reduce settlement timescales, which has clear appeal for institutional investors.
Inevitably, the tokenised fund model does create certain new risks. Their set-up costs are currently quite high, and the hoped-for efficiency savings are yet to be realised. They also present additional due diligence, oversight and governance requirements for fund providers, as well as additional cyber risk exposure, and challenges around interoperability between different blockchains.
Nonetheless, fund tokenisation offers a historic opportunity for the UK fund management sector. By adopting tokenisation at scale, the sector could come to be seen as the natural home of tokenised funds, stealing a march on global competitor jurisdictions.
The UK is well-placed to seize this opportunity, given its market leading position in both the funds and digital assets spaces, and with specialist lawyers playing a key support role in the process. A thriving tokenised funds sector could provide reciprocal opportunities and benefits for our entire digital assets and funds ecosystems, including service providers and distributors.
The Financial Conduct Authority (FCA) is alive to this opportunity, having earlier this year published its finalised guidance on the operation of tokenised UK authorised funds. This comes alongside its broader push to put in place a proportionate regulatory framework for the UK cryptoassets sector, which it hopes will put the UK at the forefront of responsible cryptoasset regulation globally. The FCA has been consistently enthusiastic and constructive in supporting firms wishing to get a tokenised fund off the ground. Early engagement is recommended.
However, while regulators can help create favourable conditions, these benefits will only be realised if there are sufficient tokenised fund launches to achieve the critical mass needed to refine the operating model. Moving decisively could secure first-mover advantages, unlock new sources of international capital and define global standards for the next generation of tokenised funds.
The conditions are in place, and the opportunity is clear. The challenge now for the industry is adoption.
Jamie Marshall is an Of Counsel and financial services specialist at CMS