The Bank of England and Financial Conduct Authority (FCA) today published a paper setting out a shared vision for tokenization in UK wholesale financial markets. The document underpins a consultation that closes 3 July and is part of a broader package. Alongside the consultation there are two Dear CEO letters, one on the prudential treatment of tokenized assets, and the other on tokenized deposits and stablecoins for banks. Additionally, there’s also a consultation exploring extending RTGS opening hours in a phased manner.
Rather than a single new proposal, the paper consolidates ongoing workstreams and makes several concrete commitments. This article mainly focuses on what is new, followed by an analysis of how the UK’s approach contrasts with developments in the US and the EU.
The most immediately consequential element is the Prudential Regulation Authority’s (PRA’s) ‘Dear CEO’ letter, published the same day. The letter confirms that tokenized traditional assets should generally receive the same prudential treatment as their non-tokenized equivalents, provided the legal rights conferred are identical and the underlying risks are comparable. Critically, this is irrespective of whether they are issued on permissionless blockchains. The Basel Committee is currently reviewing its crypto rules that require tokenized assets on permissionless chains to have a prohibitive 1250% risk weighting. The planned DIGIT digital gilt will explicitly receive the more favorable treatment.
A second key commitment is around tokenized collateral on three fronts. The Bank will consider the eligibility of tokenized assets including DIGIT as collateral for central bank purposes. In parallel, the Bank is upgrading its securities and collateral management system in 2027 to enable direct connectivity to digital asset ledgers. For central counterparties, the Bank’s policy preference is to allow tokenized versions of assets already acceptable as regulatory collateral to qualify under UK EMIR, provided the risks of the tokenization arrangements are appropriately mitigated. The Bank will set out its policy considerations in Q3 or Q4 this year. The FCA and PRA are also exploring the potential benefits of tokenized money market funds and tokenized gold as uncleared over-the-counter (OTC) collateral.
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