UK: FCA finalises Direct2Fund rules in PS26/7

Why should I read this?

On 30 April 2026 the FCA published Policy Statement PS26/7, “Progressing Fund Tokenisation”.  PS26/7 finalises the FCA’s rules on Direct2Fund (D2F), the new optional dealing model first consulted on in CP25/28.  D2F is open to all UK authorised funds (UCITS, NURS, QIS and LTAF) and to both conventional and tokenised funds.  The FCA notes that introducing the D2F model at this time allows firms to consider changes to platforms and other operational changes in respect of tokenisation, D2F and T+1 settlement collectively.

Those responding to the consultation welcomed the introduction of D2F as an optional alternative model. They noted that it is an attractive proposition for firms operating in multiple domiciles by allowing a broadly consistent process across their fund ranges.  Many noted this consistency would aid firms responding to market changes such as shortened settlement and tokenisation.

This is one of a series of three Eversheds Sutherland briefings on PS26/7, focussing on the D2F model.  Separate briefings cover the tokenisation of authorised funds and tokenised money market funds (tMMFs), the fund tokenisation roadmap and supporting future tokenisation models:

• UK: Fund tokenisation: FCA PS26/7 finalises new rules
• UK: FCA policy statement on fund tokenisation: tMMFs; the roadmap; and future tokenisation models

See also our previous client briefing on the detail of the D2F proposals in the consultation paper:

• UK: FCA consultation CP25/28 on fund tokenisation and Direct2Fund

The D2F model

D2F provides an alternative to the traditional two stage dealing process by creating a single stage approach.  Investors deal directly with the ICVC, AUT or ACS.  The ICVC or the depositary (if the relevant fund does not have legal capacity) issues and cancels units.  The AFM no longer has to act as principal between the investor and the fund, though please see the section below entitled ‘AFMs may also deal as principal’.

Money flows into and out of an Issues and Cancellations Account (IAC) held in the name of the fund, or the depositary acting on behalf of the fund.  The model brings UK practice closer to the dealing models used in Luxembourg and Ireland.  D2F is available for all UK authorised funds and for both conventional and tokenised funds.

What do I need to know about D2F?

Chapter 3 “A new direct dealing model” of PS26/7 sets out the FCA’s final views on D2F, and the new rules, which are effective from 30 April 2026, are set out at the back of the paper.  Most consultation proposals have been carried through, with some helpful changes and risk warnings from the FCA. 

What has changed since CP25/28?

The FCA has finalised the rules largely as proposed.  Four changes stand out:

• authorised fund managers (AFMs) may now also deal as principal in units of a D2F fund;
• the requirement to use a CASS client money account for unattributable sums in the IAC has been dropped, however the FCA is proceeding with other draft rules on how unattributable sums are to be treated for fund pricing and spread of risk purposes;
• in practice, umbrella funds using D2F are more likely to operate individual sub-fund IACs given the possible contagion risk. If the AFM wishes to use an omnibus IAC then under the rules it will need to have obtained legal advice confirming the omnibus IAC can operate in accordance with the principles of segregated liability; and
• different dealing models can run side by side within a single fund or sub-fund.

AFMs may also deal as principal

After consultation, the FCA has decided to permit AFMs to deal as principal in units of a D2F fund.  Different dealing models can run side by side within a single fund or sub-fund.  This is helpful for tokenised funds with 24/7 secondary market liquidity.  AFMs can support market-making while routine retail dealing flows through the D2F process.

The IAC

The IAC is scheme property.  Money in it belongs to the fund and not to the AFM or the depositary.  Unattributable sums are also scheme property.  The FCA has dropped its proposal that unattributable sums must sit in a CASS client money account.

The fund must reconcile the IAC as often as the fund deals, which in most cases will be daily.  Sums received must be allocated to a sub-fund within five business days, otherwise the AFM must instruct the bank to return them to the sender.

The AFM may move sums to a designated bank account within scheme property at any time.  The AFM must do so if instructed by the depositary.

Umbrella IACs and the protected cell legislation

Use of an omnibus IAC for all sub-funds in an umbrella remains the most significant open issue.  The FCA’s view is that, in practice, given current protected cell requirements, firms using D2F will likely need to operate individual sub-fund IACs.  An omnibus IAC is however permitted by the rules and may work if the firm can sequence cash flows so each is attributed to a particular sub-fund.  This is more likely to be possible for non-daily dealing funds with a small group of investors.  A decision will need to be made on a case-by-case basis through discussions with legal advisors.

The FCA is exploring possible amendments to the OEIC Regulations and FSMA with HMT to accommodate broader use of omnibus IACs within the protected cell legislation (PCL).  Until that work concludes, firms should take legal advice before using an omnibus IAC.

Cancelled deals and late payments

If a deal is cancelled or settlement is late, the AFM bears the resulting interest cost above a de minimis level.  The de minimis level will be agreed between the AFM and the depositary.  AFMs may still recover interest or losses from the investor under contract terms.

Long term asset funds (LTAFs) and qualified investor schemes (QISs)

D2F is available to LTAFs and QISs. 

The FCA has updated the valuation rules for cash that LTAFs hold in IACs.  In the consultation paper the FCA proposed amending the valuation rules so that cash or assets such as gilts held for liquidity purposes (including in an IAC) could be valued by the AFM using a conventional approach, without the need to appoint an external valuer.  Following the consultation the FCA will proceed with its proposed amendments in relation to cash held by LTAFs. This means LTAF managers will not need to appoint an external valuer just because the fund holds cash in an IAC alongside its CIS/AIF investments. 

On-chain valuation through oracle feeds is acknowledged as a future development for tokenised funds.  (Oracles are components that provide external connectivity and computation that blockchains cannot natively support.)

Changes to scheme documents and notification to investors

Firms moving to D2F will need to update the instrument constituting the fund and the prospectus.  New mandatory disclosures apply on the consequences for investors of fund insolvency or payment failure. 

Firms must ensure scheme documents and notifications to investors reflect the impact of switching to D2F on FSCS protection.

Firms can treat the move to D2F for an existing fund as a notifiable change to investors.  This is subject to the AFM assessing PCL and contagion risks. 

Any unattributed sums in the IAC must be resolved before any scheme of arrangement.

Anti money laundering (AML) responsibilities for authorised unit trusts (AUTs) and authorised contractual schemes (ACSs)

AML responsibilities for AUTs and ACSs may need specific analysis.  The FCA supports continuing industry and Joint Money Laundering Steering Group (JMLSG) work in this area.  Scheme documents must specify which firm is responsible for AML obligations.

What should I do?

D2F is available now, meaning firms can start to change the dealing model for their UK funds to align to any European ranges, or can consider whether D2F is appropriate for any product launches in the pipeline.

Next steps

The new rules are in force from 30 April 2026.  Firms wishing to launch new D2F funds, or convert existing funds, can begin work now.  Further FCA work is expected on the PCL and omnibus IAC question, in conjunction with HMT.  Industry work on AML allocation will continue.

How Eversheds Sutherland can help

Eversheds Sutherland is a leading legal adviser to the investment funds sector in the UK, Luxembourg and Ireland.  Our funds team works with managers and depositaries on the full range of UK authorised funds, including UCITS, NURS, QIS and LTAF structures.  We are active members of industry bodies including the Investment Association, TISA, AIMA, AREF, and ISDA, and regularly engage with HM Treasury on regulatory initiatives.

We can help you assess whether D2F suits your current or pipeline funds.  We can advise on the necessary changes to constitutional documents, prospectuses and operating procedures, and can help you consider the appropriateness of omnibus accounts.  We can also support engagement with your depositary, investors and the FCA.