The future of wealth management as UK’s FCA and partners work on new frameworks for asset tokenization standards

The Financial Conduct Authority (FCA) has officially endorsed the first comprehensive industry report from ‘Project Guardian’, an ambitious global collaboration led by the Monetary Authority of Singapore (MAS) to explore tokenisation's potential within asset and wealth management.

As the financial world evolves to embrace blockchain technology, this report, known as the Guardian Funds Framework, shines a light on how tokenisation could transform asset management.

In today’s briefing we will explore what digital business leader should know and what this global ambition signals in term of key operational changes that could reshape the UK fintech industry.

What is tokenisation and why It matters

Tokenisation, in simple terms, involves converting asset ownership into digital tokens stored on a blockchain—a type of distributed ledger technology (DLT). These tokens, similar to digital certificates of ownership, can represent anything from traditional stocks to real estate, and their placement on a blockchain ensures transparency, real-time tracking, and potentially even instant trading.

Tokenisation has drawn considerable attention because it promises to address some core challenges in the traditional asset management industry: high fees, limited transparency, complex regulatory requirements, and access barriers for smaller investors.

The Guardian Funds Framework sets out a phased approach to tokenisation, starting with conventional funds and gradually moving to the direct tokenisation of underlying assets and, eventually, the automation of value flows through smart contracts.

The FCA’s endorsement signals a significant push to align UK regulations with these trends, positioning the country as a leader in financial innovation.

What happened

On Monday November 4th, two new frameworks to standardize tokenized assets in fixed income and funds were launched.

The Guardian Fixed Income Framework and the Guardian Funds Framework establish industry standards and guidance to help financial institutions effectively navigate the expanding world of tokenized assets.

According to CCN the frameworks aim to increase market liquidity and simplify the adoption of tokenized assets. Over 40 financial institutions and policymakers from seven countries collaborated on the project.

It was revealed in a statement that throughout 2024, the FCA, the Monetary Authority of Singapore (MAS), and other members of the Guardian policymaker group are working together with firms from Singapore, the UK, and other countries.

Their goal is to identify and develop specific use cases for tokenization that can be implemented in the asset management industry. This collaborative work includes discussions and presentations at industry events, such as the Point Zero Forum held in Zurich.

Within Project Guardian, there are specific areas of focus or "workstreams." The FCA is engaged in the workstream dedicated to asset and wealth management, where they collaborate with other stakeholders to develop strategies, guidelines, and practical applications for tokenization in these sectors.

The FCA and the UK Treasury are also part of a separate group within the government’s Asset Management Taskforce. They are "observers" in the Technology Working Group, they are not directly involved in the decision-making but are monitoring and learning from discussions about how to implement fund tokenization in the UK.

In 2022, HM Treasury established the Technology Working Group within the Asset Management Taskforce, focusing on exploring fund tokenisation’s potential and drafting a strategic approach for the UK’s asset management sector.

Later in April 2023, Polygon blockchain supported the first tokenised US Mutual Fund. Although not a UK development, this milestone marked global interest in tokenisation.

It reinforced the UK’s decision to explore fund tokenisation as it saw international jurisdictions, like the US, taking tangible steps to adopt blockchain in asset management.

By the end of 2023 the FCA joined “Project Guardian” with Singapore’s Monetary Authority (MAS) on Project Guardian to develop and regulate global fund tokenisation use cases.

Why the UK financial sector is watching

The UK's journey towards fund tokenisation has set a benchmark for technological innovation in financial services. The Financial Conduct Authority (FCA), HM Treasury, and the Investment Association (IA) have been central to this movement, aiming to make the UK a global leader in fund tokenisation.

The initial baseline model was released in November 2023, defining tokenised funds within the existing regulatory framework and introducing three core registers (client, unit, and asset registers). The focus was placed on the unit register, where fund transactions are recorded digitally, while other aspects like fund settlement remained off-chain.

Early this year,two use cases were identified for real-world trials: tokenised money market funds (MMFs) as collateral and tokenised funds investing in tokenised securities. These tests, slated for completion by late 2024, will provide insights on further requirements and potential regulatory adjustments.

Post-2024, further stages are expected to tackle on-chain fund settlement, the inclusion of digital money, and expanded public-permissioned networks. The IA and Technology Working Group are also preparing for an AI-focused phase to explore new technology applications in investment.

For UK investors and asset managers, tokenisation could mean greater accessibility, enhanced transparency, and lower costs. Traditional fund structures often involve layers of intermediaries, each adding cost and complexity.

As the FCA works with MAS to define regulatory principles around tokenisation, there’s potential to simplify these structures and reduce barriers for retail investors, especially in accessing traditionally illiquid assets like real estate and private equity.

By using blockchain, fund tokenisation can streamline administrative functions like fund settlement, record-keeping, and transaction processing, reducing operational costs. Michelle Scrimgeour, Chair of the Technology Working Group, stated: “Fund tokenisation has great potential to revolutionise how our industry operates, by enabling greater efficiency and liquidity, enhanced risk management, and the creation of more bespoke portfolios”

The path to full implementation is not without hurdles. One major regulatory barrier identified involves the UK’s Money Laundering Regulations (MLR). Fund managers wishing to use DLT (distributed ledger technology) might need to register as a “cryptoassets exchange provider” or “custodian wallet provider,” a process that can be lengthy and complex.

The FCA is currently exploring options to streamline these registration processes, but they represent an initial hurdle for firms eager to adopt the technology. There are also potential legislative adjustments needed down the line. Future stages might require amendments to the Companies Act 2006 to accommodate tokenised shares and align the FCA Handbook with a digital-first investment model.

Breaking down the “Guardian Funds Framework”

The framework follows a three-stage roadmap to gradually implement tokenisation in asset management:

Stage 1: Tokenisation of Traditional Funds In this first phase, existing fund structures are tokenised, meaning traditional fund units like those in Open-Ended Investment Companies (OEICs) are represented as digital tokens on a blockchain. This phase streamlines the basic operations of subscription, redemption, and ownership transfer, setting a foundation for future tokenised products.

Stage 2: Tokenisation of Underlying Assets Expanding on the initial stage, the second phase involves tokenising the assets held within funds. This step enables fractional ownership, meaning investors could buy smaller parts of assets like private equity or real estate, enhancing liquidity and broadening access for smaller investors.

Stage 3: Tokenisation of Flows In this final stage, tokenisation evolves to include not only assets but also value flows such as dividends or interest payments. Smart contracts—a feature of blockchain technology that self-executes when conditions are met—manage these flows. This could mean a future where investors hold tokens that automatically adjust to payouts, reducing paperwork and enhancing investor control.

The potential impact on the UK economy

The UK is already a global financial hub, and embracing tokenisation could further enhance its fintech sector.

As the industry moves toward common standards and interoperability, it’s likely to attract both investment and talent, boosting the UK's fintech ecosystem.

The Guardian Funds Framework’s focus on scalability and collaboration offers a pragmatic approach to gradually transform asset management, ensuring the industry remains stable and secure for all investors.

Tokenisation could also be a powerful tool for transforming the investor experience in the UK, giving retail investors access to assets and funds previously available only to institutional players.

By breaking down traditional barriers, tokenisation may help the UK financial market shift towards a more client-centric model, addressing growing demand for personalised, transparent financial services.

What to do next?

Experts recomend digital business owner to embrace tokenization, interoperability, and security standards.

The journey should start by assessing how tokenization could streamline your operations, enhance customer experiences, or expand service offerings. Evaluate existing frameworks, like those from Project Guardian, to ensure compliance and leverage insights from regulatory developments.

Additionally, invest in scalable infrastructure and consider partnerships that enable interoperability with other platforms.

Finally, stay flexible and continuously adapt to technological advancements and market demands to maintain a competitive edge and future-proof your business in the digital ecosystem.

Invest in Regulatory Collaboration and Industry Networks: Stay engaged with industry groups and regulatory bodies, such as the Investment Association, which is leading tokenisation initiatives. Collaborating with these entities can provide insights into upcoming regulatory changes and create opportunities for co-developing tokenisation solutions

Prepare for Digital Settlement Options: As tokenisation matures, expect broader use of digital currencies for asset settlement. Firms should prepare for the possibility of integrating Central Bank Digital Currencies (CBDCs) or digital settlement options to remain competitive and compliant with emerging standards.

Focus on Customer Education and Support: Tokenisation is still a complex concept for many clients. Building educational resources to explain tokenised assets, their benefits, and associated risks can foster trust and help clients feel more comfortable with these innovative financial products.

The bottom line

The future of asset management in the UK could look very different, with tokenised assets becoming a common investment option and DLT underpinning everything from fund management to investor transactions.

While there’s much work ahead, Project Guardian has laid the groundwork for a new era in finance—one that prioritises transparency, accessibility, and efficiency for all investors.

Now is the perfect moment for digital business owners to seize the tokenization wave and lead in transforming the financial landscape. Early adoption could offer immense advantages—opening up new revenue streams, attracting forward-thinking clients, and positioning your business at the forefront of finance’s next chapter.

By incorporating tokenization into your strategy now, you’re not only enhancing the efficiency of transactions and asset management but also ensuring that your business meets the growing demand for transparency and accessibility. Embrace this shift and get ahead of the curve to capitalize on the benefits that tokenized assets promise.