Bank of England sets out approach to tokenised collateral in central clearing

News release

The Bank of England has today launched a consultation supporting central counterparties (CCPs) acceptance of tokenised forms of eligible collateral.

Tokenisation could offer opportunities for quicker and more efficient mobilisation and management of collateral, including across jurisdictions. This could support firms to respond more effectively to margin calls, improve collateral management and support innovation in central clearing, contributing to the UK's wholesale digital financial markets strategy.

The Bank considers the existing regulatory framework is not a barrier for CCPs accepting tokenised forms of eligible collateral, provided the collateral meets the standards required in central clearing. For example, tokenised collateral must remain capable of being valued, transferred and realised when needed, including in stressed conditions.

In order to support CCPs and their participants to explore tokenised collateral, the proposed Supervisory Statement is intended to provide greater clarity on how the Bank would assess applications involving tokenised collateral. Consistent with the principle of same risk, same regulatory outcome, different tokenised collateral arrangements may also achieve those outcomes in different ways.

Sarah Breeden, Deputy Governor for Financial Stability, said:

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