Tokenising Equity in the UK: What the FCA and FSMA Mean for Founders

Creating the token is the easy part. Getting it into investors’ hands is where the regulation lives.

If you are a founder exploring tokenisation, one of the first questions you will ask is whether you are allowed to do it. The short answer is yes. But the fuller answer depends on what exactly you mean by “do it.”

Tokenising your own equity, creating a digital token that represents shares in your company, is not, in itself, a heavily regulated act. It is broadly comparable to issuing shares in the traditional way. The token is simply the format in which ownership is recorded. If the shares remain the legal instrument and the token represents them, rather than replacing them, you are doing what companies have always done: issuing equity and keeping a record of who owns it.

Where the regulatory picture changes is in everything that surrounds that act. And for most founders, that is where the real questions begin.

This article is for general information only. It is not legal advice or financial advice. Always seek legal advice before making decisions about issuing or investing in tokenised securities.

The Token Is Just the Record

Under UK law, shares are classified as specified investments under the Financial Services and Markets Act 2000 (FSMA) and the Regulated Activities Order (RAO). A token that represents those shares, carrying the same rights, such as voting, dividends, or a claim on the company’s assets, is treated as a security token. It is subject to the same legal framework as a traditional share.

But the important point is this: the act of a company issuing its own shares is not a regulated activity in itself. Companies do it every day. Whether those shares are recorded on a paper register, a spreadsheet, a Companies House filing, or a blockchain does not fundamentally change the nature of what is happening. You are creating equity and recording ownership.

Tokenisation, in this context, is a method of record-keeping and representation. If the token sits alongside the share, as a digital record of it rather than a replacement for it, the regulatory treatment is broadly the same as any other share issuance.

Where the Regulation Lives

The regulatory weight does not sit on the creation of the token. It sits on the service layer that surrounds it. Under FSMA, a range of activities carried out in relation to specified investments are regulated. These include promoting investments to potential investors, arranging deals between a company and its investors, advising investors on whether to buy or sell, holding or safeguarding securities on behalf of others, and operating a platform where securities can be traded.

These are the activities that require FCA authorisation. And crucially, they are triggered not by the company issuing its own equity, but by third parties entering the picture: service providers, platforms, promoters, custodians, and intermediaries who facilitate the connection between the company and its investors.

So the distinction is straightforward. A founder tokenising their own shares, for their own register, is in familiar territory. A third party helping to distribute, promote, custody, or trade those tokens is operating in regulated territory and will need the appropriate FCA permissions to do so.

The Practical Challenge: Getting People in the Room

This is where the real tension sits for founders. You can tokenise your equity cleanly. You can structure it properly, record it on a blockchain, and have a perfectly legitimate digital representation of your company’s shares. But none of that matters if there is nobody there to invest.

And the moment you start trying to fill the room, reaching out to potential investors, communicating your offer, putting the opportunity in front of people, you are stepping into an area where regulation applies.

The financial promotions regime is one of the most immediate trip hazards. Under FSMA, communicating an invitation or inducement to engage in investment activity is restricted.

That means a LinkedIn post announcing your tokenised equity raise, a pitch deck sent to a mailing list, or a page on your website inviting investment could all constitute a financial promotion. Who writes the message, who it is aimed at, and what claims are made all matter.

There are exemptions: for example, communications directed only at high-net-worth individuals, certified sophisticated investors, or within a small private group. But these have specific criteria that must be met. Since January 2024, the thresholds for high-net-worth status have increased to £170,000 in annual income or £430,000 in net assets.

Getting these exemptions wrong is not a grey area; it is a regulatory breach. If you are unsure whether an exemption applies to your situation, seek legal advice before communicating your offer.

Beyond promotion, there are further considerations around who arranges the investment, who handles the money, and who looks after the tokens once they have been issued. Each of these activities, when carried out by a third party as a service, potentially requires FCA authorisation.

Where SEIS and EIS Fit into the Picture

For most early-stage startups, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are a natural part of any equity raise. Under SEIS, a qualifying company can raise up to £250,000; under EIS, up to £5 million per year with a £12 million lifetime cap. Both schemes offer investors generous tax reliefs, including income tax relief of 50% (SEIS) or 30% (EIS), capital gains tax exemptions on shares held for at least three years, and loss relief if the investment does not perform. The schemes were extended in 2023 and are now confirmed to run until April 2035.

For founders considering tokenisation, understanding how these schemes interact with the regulatory framework is important.

SEIS and EIS do not, in themselves, create an exemption from the FCA’s financial promotions regime. The exemptions that matter are those relating to the type of investor being approached: high-net-worth individuals, certified sophisticated investors, and self-certified sophisticated investors. However, the nature of a typical SEIS raise, small in scale, directed at a known group of qualifying individuals, often privately communicated, tends to fall naturally within those exemptions. The two frameworks do not formally depend on each other, but in practice they align well.

There are, however, important structural requirements that founders should be aware of. SEIS and EIS relief is only available on newly issued ordinary shares purchased directly from the company. The shares must be full-risk: non-redeemable, with no preferential rights to dividends or assets. This means that if tokenised equity is to qualify, the underlying shares need to meet those conditions. The token can represent the share, but it cannot alter the character of what is being issued. Founders should take legal advice to ensure the share structure is compatible with both the SEIS or EIS requirements and the tokenisation model being used.

It is also worth noting that SEIS and EIS relief applies at the point of original issuance.

Secondary trading of tokenised shares could potentially jeopardise the tax relief for investors, because the shares would no longer be newly issued. For founders structuring a tokenised raise with SEIS or EIS in mind, this is a consideration that requires early legal advice, particularly if secondary market liquidity is part of the longer-term plan.

HMRC’s Advance Assurance process remains a practical first step. It gives prospective investors confidence that the company is likely to qualify, and many angel investors in the UK will not consider an opportunity without it. Whether the shares are represented by traditional certificates or by tokens on a blockchain, the Advance Assurance process and the underlying eligibility criteria remain the same.

Why Regulated Platforms Exist

This is precisely why tokenisation platforms have emerged. They hold the FCA permissions that allow them to carry out the regulated activities on behalf of the company: structuring the offer, conducting compliance checks, facilitating investor onboarding, managing custody, and, in some cases, providing a route to secondary market trading.

For most founders, working with a regulated platform is the more practical path. It allows you to focus on building your business while the platform handles the regulatory infrastructure. The platform acts as the intermediary, much as a nominee, broker, or crowdfunding platform does in a traditional equity raise.

That said, founders should approach platform selection carefully. Being FCA-registered for anti-money laundering purposes is not the same as being FCA-authorised to carry out regulated investment activities. The distinction matters, and founders should verify what permissions a platform actually holds before committing. Independent legal advice can help you assess whether a platform’s permissions are appropriate for your specific raise.

The Regulatory Direction of Travel

The UK’s regulatory framework for digital assets is evolving. In February 2026, Parliament passed the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, bringing a broad range of cryptoasset activities formally within the FCA’s perimeter. The new regime is expected to come into force in October 2027.

For security tokens, including tokenised equity, this reinforces the principle that has applied throughout: the token is the form, the underlying asset determines the regulatory treatment. The UK is not creating a separate regime for digital securities. It is integrating them into the existing framework.

The FCA’s Digital Securities Sandbox continues to provide a testing environment for firms exploring how tokenised securities can be issued and traded. A policy statement on fund tokenisation is expected in the first half of 2026. And the application window for the new cryptoasset regime is expected to open in September 2026, giving firms time to prepare for authorisation.

For founders, the direction is encouraging. The infrastructure is being built. But it is being built around standards that expect professionalism, compliance, and transparency.

The Takeaway

Tokenising your own equity is not the hard part. The mechanics of creating a token and recording ownership on a blockchain are well within reach for any company willing to invest the time.

The harder question is what comes next. How do you get investors to the table? Who promotes the opportunity? Who handles custody? Who ensures the process is compliant?

These are the questions where the regulatory framework has real teeth, and where founders need to be deliberate about how they proceed.

The good news is that the answers exist. Regulated platforms, clear exemptions, and an evolving framework all provide routes to doing this properly. The key is understanding where the lines are before you cross them.

Creating the instrument is straightforward. Distributing it is where the regulation lives. The founders who understand that distinction will be the ones best positioned to use tokenisation effectively.