BoE Consults on Tokenised Collateral at UK CCPs

The Bank of England says its existing rules already allow UK clearing houses to accept tokenised collateral, as long as that collateral meets the standards required in central clearing, and it has opened a consultation on how they should do it that runs until 12 February 2027.

“The Bank considers the existing regulatory framework is not a barrier for CCPs accepting tokenised forms of eligible collateral,” it said in a news release on 29 October. CCPs, or central counterparties, sit between the two sides of a trade and hold collateral, known as margin, in case either side defaults.

The consultation paper sets out draft supervisory expectations for CCPs that want to take tokenised assets, with tokenised gilts as the main example. It says there will be no separate regime and that the draft creates no new obligations. The approach is technology neutral: the Bank’s test is “same risk, same regulatory outcome”.

What the Bank expects from clearing houses

The core test is practical. Tokenised collateral must be able to be “valued, transferred and realised when needed, including in stressed conditions”, the Bank said. The paper groups its expectations under five headings: liquidity, valuation and interoperability; settlement finality; credit and concentration risk; operational resilience; and custody.

The stakes are large. The Bank says UK CCPs manage contracts worth “hundreds of trillions of pounds” in notional outstanding every day. The expectations would apply to UK CCPs and to systemically important non-UK CCPs recognised in the UK.

The paper is also candid about new risks. Collateral that moves faster could leave thinner buffers. Smart contracts acting at the same moment could create correlated demands for cash. And a token could trade at a discount to the asset behind it in a crisis.

The Bank is asking for views on assets beyond tokenised gilts, including stablecoins, tokenised money market funds and tokenised gold. Stablecoins are not currently accepted as CCP collateral, and the paper says a rule change or permission would be needed before they could be.

“Through today’s consultation, the Bank is further delivering its secondary objective for innovation in financial market infrastructure, while maintaining financial stability,” said Sarah Breeden, Deputy Governor for Financial Stability. “It’s part of a major agenda between authorities and industry to enable the responsible adoption of tokenisation in financial markets.”

The paper follows a Bank and FCA call for input in May and a feedback statement in September. The Bank says it will keep working with the FCA, HM Treasury and industry. TSN tracked earlier UK steps in its round-up of regulators and tokenisation.

Why the Bank chose not to write new rules

Saying the current framework is “not a barrier” may be the most useful thing the Bank could have done. Clearing houses and their members have little appetite to be first movers into an unclear legal position. By stating that tokenised gilts are judged by the same tests as ordinary gilts, the Bank removes the question of whether tokenisation is allowed and replaces it with a familiar one: can this asset be valued, moved and sold in a crisis?

That shifts the hard work to infrastructure. A tokenised asset is only as useful as the cash leg that settles against it, which is why the paper points to the Bank’s DIGIT digital gilt work and its RT2 synchronisation service, targeted for 2028. Until then, CCPs face a gap between what the rules allow and what the plumbing supports.

The paper’s list of risks is also a sign of seriousness. The case for tokenised collateral is speed and round-the-clock movement, but the Bank is plain that speed can cut both ways in a stress event. Firms that want to be early will need to show their tokens hold up when markets are under strain.

The assets are already arriving. Aviva Investors has put £50m into a tokenised sterling liquidity fund on the XRP Ledger, and Hong Kong’s SFC has approved 24/7 trading of two tokenised money market funds. In the US, the SEC has added tokenisation checks to its 2027 exam priorities. The Bank’s consultation is about whether such assets can be trusted as margin, and it has given the industry until 12 February to answer five questions on how.