The FCA’s rules for a Direct 2 Fund model

In April 2026, the FCA published Policy Statement PS26/7: Progressing Fund Tokenisation (the PS), in which it set out:

• guidance on Tokenised authorised funds
• rules for a new “Direct to fund” (D2F) dealing model
• a tokenisation roadmap, covering both the near-term and the longer-term

The PS follows on from the FCA’s consultation under CP 25/28 (the CP), which ran from October to December 2025.

This note looks at the issues and final rules for a “Direct to fund” (D2F) dealing model - an optional model where investors can deal directly with the fund, rather than using the manager’s box.

Overview

Through the D2F model – which is applicable to both existing conventional funds and tokenised funds - the FCA:

• intends to simplify and streamline fund operations, align with T+1/T+2 settlement changes and make it easier to implement atomic on‑chain settlement of primary market fund units
• introduces the Issues and Cancellations Account (IAC) structure, with rules on reconciliations, treatment of unattributed cash, and the (legally constrained) use of omnibus IACs in light of protected cell legislation
• provides an alternative to the traditional box model that can be adopted where it is more efficient - including for tokenised funds - while allowing the Authorised Fund Manager (AFM) to continue to deal as principal where appropriate.

Timing

The new rules and guidance contained in the PS took effect on publication.

Although they are optional, they are intended to give UK AFMs and depositaries greater flexibility to:

• launch tokenised authorised funds
• adopt the D2F model and
• pilot more advanced tokenisation use‑cases

while maintaining existing standards of consumer protection and market integrity.

What is the D2F model?

The PS looked at the following six areas in respect of the D2F model

• an overview of the new direct dealing model
• direct dealing in authorised funds
• the issues and cancellations account (IAC)
• implications of the IAC forming part of scheme property
• investor disclosures and changes to existing schemes
• the treatment of cancelled debts

Looking at each of these in turn

1. An overview of the new direct dealing model

Issue and feedback to the CP

The general feedback to the proposals set out in CP 25/28 was positive - the D2F model was viewed as an attractive proposition for firms which operate in multiple domiciles since it allows a broadly consistent process across their fund ranges and helps firms respond to market changes, such as shortened settlement and tokenisation.

Respondents to the CP considered that D2F allows a fund greater efficiency and consistency with fund operations in other jurisdictions while enabling a firm to streamline and simplify fund operations.

In particular, respondents noted that D2F could help simplify atomic settlement on-chain for primary deals in authorised fund units.

The FCA’s final position

While the CP proposed prohibiting AFMs from dealing as principal in the units of a fund which uses D2F - it was felt that this could prevent the AFM from providing liquidity in fund units where a tokenised fund allows 24/7 settlement of units in a secondary market – in light of feedback, the PS makes clear that the final rules allow both

• firms to deal as principal in units of a fund using D2F and
• the use of different dealing models within a fund or sub-fund.

2. Direct dealing in authorised funds

Issue and feedback to the CP

Prior to the PS, the fund’s AFM acts as principal in unit deals with unitholders of authorised funds and maintains a ‘box’ or float of units in each fund in order to buy and sell units.

Under D2F, it is the fund (or its depositary) and not the AFM, which acts as principal, with investor deals being carried out through a single-stage issue and cancellation of units in the fund, in exchange for settlement of cash between investors and the fund.

Although there was nothing in the previous rules to prohibit this model, many rules were drafted on the basis of the AFM dealing as principal.

As a result, the FCA is introducing D2F as an optional, alternative process – it would allow flexibility to allow the use of both direct dealing (including D2F) and the existing box/principal mode.

Feedback highlighted, in particular, three points which were seen as key to the new model being taken up. These were:

• the FCA’s proposal that unattributable payments should be transferred to a client money account of the AFM
• controls on use of umbrella-level cash accounts and
• the role of the depositary in relation to AML controls.

Depositaries also requested that the final rules should better clarify allocation of AML responsibilities for end investors in authorised unit trusts (AUTs) and authorised contractual schemes (ACSs) under the D2F model.

The FCA’s final position

In response, the PS notes that the FCA had said, in the CP, that where it was proposed to operate an AUT or ACS using D2F, identification of who is responsible for AML controls “may require specific analysis, based on the instrument constituting the scheme and the effect of broader UK legislation”. As a result, there would be cases where it may not be economically viable for the depositary to take on this responsibility.

The FCA is working with industry to provide clarity on this point. For the time being, firms launching new funds using direct dealing (or wishing to convert existing funds to direct dealing) must ensure that scheme documents specify who is responsible for AML.

3. Issues and cancellations account

(a) The IAC, umbrellas and Protected Cell Legislation

Issue and feedback to the CP

For receiving payments from, and making payments to, investors, the D2F model uses an Issues and Cancellations Account (IAC). Since the IAC would constitute fund scheme property, the CP proposed:

• recognising the purpose of the IAC in COLL and setting out the responsibilities of the AFM and depositary
• allowing firms to operate omnibus IAC accounts at umbrella level – albeit with safeguards in place (including ensuring the firm complies with the protected cell legislation (PCL) in the OEIC Regulations and FSMA)
• not allowing overdrafts on omnibus accounts
• a set of general requirements to ensure that use of an umbrella IAC would not pose undue risk to unitholders – proposed guidance in COLL, for example, would require the AFM to consider the use of leverage within the sub-funds of the umbrella.

Feedback, though, showed that while there was agreement that the operation of an umbrella level IAC must ensure compliance with PCL, respondents were less clear on how the FCA interprets this legislation – some felt that the PCL could accommodate an accounting or attribution-based approach to determining a sub-fund’s assets and liabilities where cash is held in an omnibus account instead of requiring that the settled cash balance is traced.

However, unless the FCA rules clearly permitted an attribution basis, many firms would be unable to operate an omnibus account within the PCL because of the volume and timing of payments from the account. The impact of this would be to significantly limit uptake of the new D2F model.

The FCA’s final position

The PS notes the FCA’s ongoing work with trade bodies and the Treasury on interpretation of the PCL.

Its view is that “significant doubt remains whether operational processes that could result in overdrafts on, or fungible use of cash in, the IAC can be utilised in respect of funds subject to the PCL, without this resulting in either breaches of the PCL, or the potential for breaches and voiding of terms”.

In practice, this would mean that (with limited possible exceptions) firms which use D2F would need to operate individual sub-fund IACs.

Since the FCA’s intention is for all forms of authorised fund to be able to use D2F in a way consistent with international practice, it continues to explore options with the Treasury on how to accommodate broader use of D2F – this may well mean amending the OEIC Regulations and FSMA to provide a clearer legal basis for D2F consistent with the PCL.

For the time being, though, the FCA has amended the rules on which it consulted to reflect the PCL more closely, with a view to minimising conflicts and overlapping terms with the PCL.
The PS notes that most firms managing an umbrella will need to use individual sub-fund IACs in order to ensure compliance with the existing PCL.

Where a firm proposes to use an omnibus IAC, this should be supported by legal advice on whether the proposed model can be operated at all times in compliance with the relevant PCL.
The FCA’s proposed rules now provide additional guidance on the factors firms should consider when assessing any proposed model against the PCL.

(b) Cash held by the depositary of a UCITS or NURS

Issue and feedback to the CP

In the CP, the FCA proposed withdrawing guidance in COLL to include all cash held by the depositary of a UCITS or NURS when exposure to the depositary is calculated for the purpose of limiting the spread of risk, with a 12-month period for firms to adjust operational processes.

Most respondents agreed with the proposal or made no comment on it

The FCA’s final position

The FCA will proceed with the proposals as contained in the CP.

4. Implications of the IAC forming part of scheme property

(a) Pricing and spread of risk calculation

Issue and feedback to the CP

In the CP, the FCA proposed:

• the retention or extension of existing rules to cash held in an umbrella, including draft rules on conditions for the operation of IAC accounts, with those sums in the IAC which have been attributed to a sub-fund following reconciliation appearing in the accounts for that sub-fund and any unattributed sums being removed from the IAC by the AFM and either returned to their sender or placed into a client money account of the AFM
• that any cash held as scheme property which could not be attributed to a specific sub-fund should (pending performance of reconciliations) be allocated between sub-funds in a manner which is fair to unitholders in the umbrella
• these sums should appear in exposure calculations to the bank operating the relevant account, whether they had been attributed or allocated.
• sums the AFM reasonably believes could not be attributed to a sub-fund should not be included in the price of such a sub-fund.

Most responses were in support of these proposals, though arguments were raised that the IAC should be an account operated by the manager rather than considered scheme property.

On the issue of requiring unattributable payments to be returned or paid into a client money account, many respondents felt that not only did the use of an AFM client money account offer no greater protection than the IAC but it could complicate the return of payments.

The FCA’s final position

The PS confirms the FCA’s view that:

• all cash held in the IAC should be considered scheme property
• it should proceed with its proposals on the treatment of unattributable sums for the purposes of fund pricing and spread of risk
• for the purposes of the rules on registration of title, cash in the IAC does not constitute scheme property in ‘registered form’
• requiring use of a client money account is not the right default approach for unattributable sums and its final rules include updated requirements in COLL for cash held as scheme property in the IAC.

The final rules in the PS include stronger controls on reconciliations, namely:

• the manager must reconcile any IAC daily, or as often as the fund deals
• money received into an omnibus account must be allocated promptly – and no later than 5 business days after receipt
• until allocated to a sub-fund or investor, the money should be recorded as unattributed money
• where the money remains unattributed after 5 business days, the AFM must instruct it to be returned to the sender
• the AFM may move such payments to a designated bank account within scheme property at any time - and must do so if instructed by the depositary.

(b) D2F – LTAFs and QISs

Issue and feedback to the CP

In the CP, the FCA proposed to introduce direct dealing for LTAFs and QISs (in the same way as for UCITS schemes and NURS) and an update to its valuation rules so that, when an LTAF uses omnibus or individual IACs, the AFM can value cash or liquid assets like gilts in the usual way.

These plans were largely welcomed, with most agreeing they would improve clarity and make practices more consistent across the industry. Although in favour, some made the point that an LTAF manager already usually carries out valuations under existing rules in COLL, obtaining help from an independent valuer when required.

The FCA’s final position

The PS confirms that the FCA has proceeded with its proposed amendment on cash held by LTAFs.

5. Investor disclosures and changes to existing schemes

Issue and feedback to the CP

Other than some consequential amendments (such as requiring the prospectus of a direct dealing fund to explain briefly what happens if an investor or the fund becomes insolvent or cannot make payments), the FCA did not propose any major changes to its rules on scheme instruments or fund prospectuses.

It did, though, propose that:

• that any unattributed sums in an IAC must be resolved before a scheme of arrangement involving scheme property of a direct dealing fund can take effect
• introducing direct dealing could be treated as a ‘notifiable’ change, where the AFM has properly assessed the potential risk of contagion where an omnibus IAC is used, and the specific requirements of the PCL.

These changes were broadly welcomed.

The FCA’s final position

The final rules in the PS are generally the same as those consulted on, though there are changes to the rule on the contents of the instrument constituting a scheme, which reflect changes in how the AFM can issue units in a AUT or ACS.

6. The treatment of cancelled deals

Issue and feedback to the CP

The AFM is able to cancel deals in fund units where an investor fails to complete them. When acting as principal and choosing not to recover costs from the investor, the manager must absorb those costs itself.

The CP proposed that the manager of a direct-dealing fund should also bear any interest costs when it decides not to cancel the deals. Feedback to this proposal was generally supportive with respondents of the view that a firm may agree terms allowing it to recover interest or losses from the investor but it should not pass any fees to the fund which would unfairly disadvantage compliant investors.

The FCA’s final position

The FCA has decided to proceed with the rules as consulted on.