Tokenisation is the process of creating a digital representation of a real-world asset — such as a share, bond or unit of currency — on a digital ledger. It has the potential to streamline wholesale markets, making everything from issuing securities to managing assets faster and more efficient. Along with greater functionality this could support market efficiency and resilience while lowering costs.
The FCA and Bank have heard from industry that firms need more certainty on regulation and infrastructure as tokenisation grows. In response, they have set out their approach in key areas where firms want greater clarity, including prudential treatment, tokenised collateral and settlement instruments.
They have also opened a discussion on key principles for regulation and infrastructure that could facilitate the development of tokenisation in wholesale markets.
Simon Walls, executive director of markets at the FCA said: “Tokenisation has the potential to transform wholesale markets — reshaping how assets are issued, traded and settled. We want to support firms in adopting this technology to lower costs, reduce risk and unlock new services, and our partnership with the Bank of England will ensure a common approach across all parts of wholesale markets.
Today we are setting out the principles of a shared long-term vision to give industry the clarity it needs to engage, invest and innovate with confidence. UK markets have always embraced new technology, and that will be central to ensuring the UK remains at the forefront of global wholesale markets.”
Sarah Breeden, deputy governor for financial stability at the Bank of England said: “The Bank and FCA have done a huge amount to enable the responsible adoption of tokenisation in retail and wholesale finance in the UK, working with the government and the industry. The task now is for public and private sectors together to build on these strong foundations, moving from pilots to production to support financial stability and sustainable growth.”
The FCA and the Bank of England are seeking industry views on where existing rules and infrastructure support or constrain the safe use of this technology. Feedback will help shape future work and inform the next steps of developing a joint roadmap for digital wholesale markets.
Supporting action from the Bank of England and PRA
The Bank of England has published a consultation on extending RTGS and CHAPS settlement hours, setting out next steps towards near 24/7 settlement. The staged approach includes weekend and extended daily operating hours, subject to consultation and industry readiness. This will support cross-border payments, and new payment and settlement models as tokenisation develops.
The Prudential Regulation Authority (PRA) has published Dear CEO letters setting out updated guidance on the prudential treatment of tokenised asset exposures and on innovations in deposits, e-money and stablecoins. These reflect recent market developments and reaffirm expectations on risk management and compliance.
The FCA’s commitments
The FCA is committing to further work to support tokenisation in the UK, including considering how its approach to the application of client asset (CASS) rules may evolve in light of industry feedback. The FCA recently published its policy statement on progressing fund tokenisation.
