Not all tokenization benefits are equal, according to responses received by the Bank of England and Financial Conduct Authority (FCA). In a summary of the feedback from their call for input on tokenization in wholesale markets, the ability to move and re-use collateral faster came through as the number one benefit. Apparently 24/7 trading and atomic settlement were rarely mentioned, unless the context was collateral, such as margin calls outside business hours.
There’s a catch, though. The regulators had said that settlement finality could be determined contractually rather than set out in legislation. Respondents pushed back hard, arguing that this does not provide insolvency protection against third parties. Without clear legal settlement finality, in practice assets cannot be re-pledged, lent or used as margin. That directly undercuts the collateral mobility that everyone agrees is the prize. The regulators’ response was noncommittal, saying they are “considering what further certainty” they can provide at this stage.
The Bank of England has confirmed that stablecoins can be used as settlement assets in the Digital Securities Sandbox, subject to conditions and Treasury regulation changes. More striking, the Bank said it will consider the eligibility of tokenized assets “like stablecoins” as collateral in its Sterling Monetary Framework operations, including DIGIT. The FCA also launched a call for input on tokenized gold, including for collateral usage. And later this year the Bank of England is planning a supervisory statement and discussion paper on the acceptance of tokenized collateral by central counterparties.
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