Bank of England launches tokenised collateral consultation for UK central clearing

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BoE tokenised collateral consultation

Highlights

The Bank of England launched a consultation outlining a proposed supervisory approach for CCPs to accept tokenised collateral, stating existing regulations are not a barrier.
Tokenised assets proposed for central clearing must remain capable of being valued, transferred, and realised, including in stressed market conditions, to meet required standards.
Tokenisation may enable faster and more efficient collateral mobilisation and management, supporting innovation and cross-border activity in UK wholesale financial markets.

Supervisory framework for tokenised collateral

As reported by Bank of England, the consultation sets out a proposed supervisory approach for central counterparties, or CCPs, that want to accept tokenised collateral, with the central bank saying the current regulatory framework is not in itself a barrier.

The Bank says tokenised assets still need to meet the standards required in central clearing. That means collateral must remain capable of being valued, transferred and realised when needed, including during stressed market conditions.

The proposed Supervisory Statement is intended to give CCPs and their participants greater clarity on how the Bank would assess applications involving tokenised collateral. It adds that, under the principle of same risk, same regulatory outcome, different tokenised collateral arrangements may achieve those outcomes in different ways.

Implications for UK wholesale markets

For clearing members and other market participants, tokenisation could create opportunities for quicker and more efficient mobilisation and management of collateral, including across borders. The Bank says that could help firms respond more effectively to margin calls, improve collateral management and support innovation in central clearing.

Sarah Breeden, Deputy Governor for Financial Stability, says the consultation advances the Bank's secondary objective for innovation in financial market infrastructure while maintaining financial stability. She says the work forms part of a broader agenda between authorities and industry to enable the responsible adoption of tokenisation in financial markets.

In our earlier article on the Bank of England’s cyber-resilience push, we covered Sarah Breeden’s warning that AI is amplifying the scale and complexity of cyber threats to the financial system. We outlined how supervisors are urging major banks to develop deeper recovery capabilities, including “bare metal” recovery options, to keep critical services running even if primary technology is compromised.

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