Can a UCITS or AIF be tokenized?

Yes, and it has been done. Nothing in the UCITS Directive or AIFMD prohibits issuing units in tokenized form — what UCITS restricts is what the fund may hold, which is a different question. This sets out what EU law allows, what ESMA has said, and what the depositary actually does.

Can a UCITS be tokenized under current EU law?

Yes, in the sense that matters: nothing in Directive 2009/65/EC prohibits issuing UCITS units in tokenized form, and tokenized UCITS share classes exist today in Luxembourg. What is constrained is not the tokenization of the units but the fund’s eligible assets. A UCITS cannot hold crypto-assets as investments, which is a different question and the one most often conflated with this.

The distinction is worth stating twice. Tokenizing the units changes the register and the transfer mechanism. Holding digital assets changes the portfolio. A UCITS may do the first and may not do the second. Franklin Templeton obtained approval to deliver a tokenized UCITS fund on blockchain in Luxembourg in October 2024, and Amundi issued its first tokenised fund share in November 2025 — both examples of the first, neither of the second.

The real constraints on a tokenized UCITS are operational. The depositary must be able to oversee the register in tokenized form; the transfer-agency function must remain accountable; the prospectus and key information document must describe the tokenized framework and the rights attached; and retail distribution obligations continue in full. Because UCITS is a retail regime, supervisors pay particular attention to whether investors understand what they hold.

So the reason most tokenized funds are not UCITS is economic rather than legal. UCITS carries retail obligations and eligible-asset limits suited to liquid strategies, while the strategies with most to gain from a tokenized register — venture, private credit, real estate — cannot be UCITS at all. Where a manager runs a money market or other liquid strategy, tokenizing UCITS share classes is both permitted and, on the evidence of the last two years, being done.

What about an AIF under AIFMD?

An AIF is the more natural home, and it is where most European tokenized funds sit. Directive 2011/61/EU regulates the manager rather than the fund and imposes no restriction on the form in which units are issued. A Luxembourg RAIF or an Irish QIAIF with an authorised AIFM can issue tokenized units to professional and well-informed investors without any bespoke permission.

The manager’s obligations are unchanged and complete: portfolio and risk management, a depositary, valuation, liquidity management, remuneration policy and regulatory reporting. What changes is that the register is a ledger and each transfer is validated against eligibility rules before it executes. The AIFM remains accountable for everything it was accountable for before.

Two AIFMD-specific points deserve attention at structuring. The depositary’s duties include verifying ownership of fund assets and overseeing cash flows and the subscription and redemption process, all of which it must discharge against a tokenized register — which is why depositary engagement is the long pole in any launch. And marketing to professional investors uses the AIFMD passport: a token that could technically reach anyone must still only be offered where the passport allows, so distribution controls sit in the eligibility rules rather than in hope.

One structural alternative is worth naming. Where the economics are debt-like or the asset is single, a Luxembourg securitisation vehicle with a compartment per issuance is often used instead of a fund, avoiding the appointment of an AIFM and a depositary. That is a legitimate route with a different disclosure and risk profile, not a way around AIFMD, and it should be chosen on the instrument’s substance rather than on which regime looks lighter.

What has ESMA actually said?

ESMA has said that fund tokenisation is under active supervisory examination, that it is building knowledge with national authorities from real cases, and that it is considering whether regulatory barriers exist in the UCITS and AIFMD regimes. It has not said that fund tokenisation requires new legislation, and it has issued no fund-specific tokenisation rules. That is the accurate position as of July 2026.

In a speech published on 12 June 2026, ESMA’s chair set out priorities for European asset management and addressed digital innovation directly: DLT and fund tokenisation are beginning to reshape market practices; ESMA is engaging with member-state competent authorities to build supervisory knowledge, focusing in particular on real-life cases; and part of that conversation concerns whether any regulatory barriers to fund tokenisation exist, including in relation to the UCITS and AIFMD regimes. The same remarks stressed the investor-protection dimension — that investors must understand the rights attached to their holdings and the risks involved — and that efficiencies must be delivered within a framework preserving investor protection, clear accountability, operational resilience and supervisory visibility.

Separately, and more consequentially for classification, ESMA published guidelines in December 2024 on the conditions and criteria for qualifying crypto-assets as financial instruments. Those guidelines are the controlling document when a token’s status is in question, and they confirm the architecture: a tokenized fund unit is a financial instrument, MiCA excludes financial instruments by Article 2(4), and MiCA applies only to ancillary crypto-asset services around such an instrument.

What does the depositary do when fund units are tokens?

Everything it did before. The depositary safekeeps the fund’s assets, verifies ownership of assets it cannot hold in custody, oversees the fund’s cash flows, and monitors the subscription, redemption and valuation processes. Tokenizing the units changes the register of investors, not the depositary’s duties over the portfolio.

What is new is oversight of a register kept in tokenized form. In practice the depositary will want to know who is accountable for the register, how it reconciles to the administrator’s books at each NAV date, how transfer eligibility is enforced and under what rules, how failed transfers are recorded, and what happens on key loss or a compelled transfer. It will also want the technology provider’s role documented, including whether the register can be operated independently if that provider fails.

Depositary due diligence is therefore the item most likely to determine a launch date, and it is not compressible by pressure — it is the depositary’s own risk decision. Managers who move fastest hand over one complete package early: token documentation, transfer-rule logic, reconciliation design, provider agreements, and the legal opinion on register recognition in the domicile.

EFAMA’s buy-side practitioner’s guide to tokenisation is useful here because it sets out the models actually in use: whether the register is maintained by the asset manager itself, by a third-party intermediary such as the depositary or distributor, or by a specialised authorised entity; and whether the investor holds and controls the wallet directly, including the private keys, or holds through an intermediary. Those two choices — register keeper, and direct or intermediated holding — define most of the operational design and most of the depositary conversation.

Which member states are furthest ahead?

Luxembourg and Germany are furthest ahead, Ireland is moving deliberately and publicly, and France and Italy have workable national routes. The ranking follows two things: whether national law gives a ledger register clear standing, and whether the domicile’s fund industry has actually done it.

Luxembourg combines a large fund industry with implementation of the DLT Pilot Regime through its law of 15 March 2023, which also amended its definition of financial instruments, as the CSSF records. It is where tokenized fund shares have actually been issued: Franklin Templeton’s approval to deliver a tokenized UCITS fund on blockchain in October 2024, BNP Paribas Asset Management’s tokenised money market fund shares in May 2025, and Amundi’s first tokenised fund share in November 2025.

Germany has the clearest register law through its Act on Electronic Securities, which created crypto-securities registers and a supervised registrar role, and it hosts two of the three authorised DLT market infrastructures. Ireland published a discussion paper on tokenisation through the Central Bank of Ireland in March 2026, which gives managers a stated supervisory view to work with. France recognises securities registered in a blockchain under its 2017 decree, a route the AMF describes alongside the pilot regime. Italy has a national DLT fund route with defined register-keeper options, described in EFAMA’s practitioner guide.

For a manager choosing a domicile, the useful test is not which jurisdiction is most enthusiastic but which can answer three questions in writing: can the ledger be the legal register here, which entity may keep it, and has a depositary in this market already overseen a tokenized register. Luxembourg, Germany and Ireland can answer all three today.

What is likely to change in 2026 and 2027?

Expect clarification rather than a new regime. Three processes are running: ESMA’s supervisory work on real fund tokenisation cases and whether UCITS and AIFMD contain barriers; the Commission’s market integration package, which reopens UCITS, AIFMD, MiFID and MiFIR, EMIR, CSDR and the cross-border fund distribution rules with tokenisation in scope; and the proposed reform of the DLT Pilot Regime.

The most likely outcomes are targeted: guidance on how depositary and transfer-agency obligations are discharged against a tokenized register, movement toward more uniform recognition of on-chain registers across member states, and wider eligibility to operate DLT market infrastructures. EFAMA supported most of the measures in the Commission’s package in December 2025 while cautioning against additional ESMA supervisory reviews for large asset managers.

What is unlikely: a bespoke tokenized-fund directive, any relaxation of UCITS eligible-asset rules to admit crypto-assets as investments, or the removal of the depositary from tokenized structures. Planning assumptions built on any of those three would be building on sand.

The practical consequence for a manager deciding now is that current law already permits what most managers want to do, so the question is operational readiness rather than legal permission. Read how to tokenize a fund in Europe step by step, what a tokenized fund is and what the token represents, or the EU regulatory stack for tokenized securities.