Consultation on supervisory expectations for central counterparties seeking to accept tokenised collateral

1: Purpose

1.1. This consultation paper seeks views on the Bank of England’s (Bank’s) draft supervisory expectations for central counterparties (CCPs) seeking to accept tokenised versions of collateral that is currently eligible under the proposed CCP Rulebook.^{footnote [1]} This includes both collateral that is accepted and collateral that is eligible but not currently accepted. This consultation also seeks more information on industry interest in a wider range of tokenised collateral to inform future policy making, including whether the draft supervisory expectations could remain relevant to a broader range of tokenised asset types, should any become eligible for acceptance as CCP collateral in the future. The supervisory expectations, set out in the draft supervisory statement (SS), do not create a separate regulatory regime for tokenised collateral but are intended to provide greater clarity on what the Bank would expect CCPs to consider when submitting applications to accept such collateral through the existing supervisory process for the assessment of new collateral.

1.2. Tokenisation may create opportunities to improve risk management through more efficient and rapid asset mobilisation and streamlined collateral management processes, while also supporting wholesale market innovation. The Bank’s initial view is that the existing regulatory framework does not prevent CCPs from accepting tokenised forms of eligible collateral. However, engagement with industry indicates that additional clarity may help CCPs interpret and apply the requirements, supporting their acceptance of tokenised collateral and realising associated benefits. In line with our commitment to supporting tokenisation in UK wholesale financial markets, the Bank is therefore providing greater clarity on how the regulatory framework applies to tokenised collateral arrangements to support their safe development and use.

1.3. The Bank encourages firms actively considering acceptance of tokenised collateral for central clearing to engage with the Bank on potential proposals. This engagement can further build a shared understanding of how regulatory requirements and supervisory expectations may be met, particularly as these markets develop and both the Bank and firms build experience.

1.4. In July 2025, the Bank consulted on the draft UK CCP Rulebook as part of the repeal and replace of UK EMIR with Bank rules in its publication Ensuring the resilience of CCPs. The Bank expects to publish its policy response and rules in 2026 Q4. These rules will come into effect once HM Treasury repeals Titles III to V of UK EMIR and the associated technical standards. At that point, the relevant CCP-facing requirements currently set out in UK EMIR will be replaced with Bank rules. Accordingly, unless otherwise stated, references in this consultation to the existing regulatory framework applicable to CCPs should be understood as references to the proposed UK CCP Rulebook and the draft statement of policy on the Bank’s approach to supervisory processes and margin permissions.^{footnote [2]}

1.5. Under the draft UK CCP Rulebook, CCPs may only accept collateral that is highly liquid and subject to minimal credit and market risk. The proposed rules specify the types of assets that may be accepted as collateral alongside the conditions for their eligibility. Eligible collateral includes cash, financial instruments, bank guarantees and gold, provided these satisfy the relevant requirements outlined in the proposed rules.

1.6. The proposed framework, set out in the Review and Testing of Models and Parameters Part and the statement of policy on the Bank’s approach to supervisory processes and margin permissions, also requires a CCP to notify, and in some cases also seek the Bank’s permission for, changes to its model. This would include the introduction of new collateral types, including tokenised versions of collateral already accepted, where associated risks may not be identical to those already approved, including where securities are delivered through a different mechanism or have a different credit risk or liquidity profile.

1.7. This consultation sets out draft supervisory expectations for the acceptance of tokenised collateral currently eligible under the UK CCP Rulebook. The SS does not seek to introduce new regulatory obligations for CCPs. Rather, it provides additional clarity on token-specific factors that the Bank will expect a CCP to have considered when applying the existing framework.

1.8. The proposed approach is consistent with the current domestic expectations applicable to CCPs and with the CPMI-IOSCO Principles for Financial Market Infrastructures (PFMI).^{footnote [3]}

The Bank’s objectives analysis

1.9. The framework introduced by the Financial Services and Markets Act (FSMA) 2023 maintains that the Bank’s primary objective for its CCP and Central Securities Depository (CSD) functions is to protect and enhance the stability of the financial system of the UK. The Act also introduced a secondary innovation objective, in the provision of CCP and CSD services. Accordingly, when advancing its primary financial stability objective, the Bank must, so far as reasonably possible, also act in a way which facilitates innovation in the provision of CCP and CSD services with a view to improving the quality, efficiency, and economy of those services.

1.10. The Bank considers that the proposals in this consultation are consistent with both objectives. The draft SS is intended to support the safe adoption of tokenised collateral arrangements within central clearing by maintaining expectations of resilience but providing space for these outcomes to be achieved in different ways. By providing greater clarity on the factors and considerations that may be relevant to CCPs seeking to accept tokenised collateral, the Bank is facilitating responsible innovation.

1.11. CCPs are required to assess the full range of factors that could affect their ability to utilise collateral with minimal loss in value when needed. This is key for financial stability and is captured in the existing regulatory framework, notably collateral eligibility criteria. These factors include valuation, liquidity, transferability and the resilience of associated operational and custody arrangements. It also includes consideration of whether collateral can be accessed, transferred and realised in a timely manner following a participant default, and whether any dependencies on other entities could affect the availability of collateral when required.

1.12. While technology may create new ways for collateral to be issued, transferred, held and settled, the use of tokenisation does not, in itself, determine whether collateral is eligible for acceptance by a CCP. The Bank follows the general principle of ‘same risk, same regulatory outcome’. The process of tokenisation may introduce risks but, as with traditional assets, the regulatory and supervisory framework allows those risks to be appropriately managed. Where a CCP can demonstrate that tokenised collateral meets the outcomes expected of eligible collateral, it should be available for acceptance by CCPs should they choose to do so. In turn, this can support CCP participation in wholesale digital markets.

‘Have regards’ analysis

1.13. In developing these proposals, the Bank has had regard to the matters relevant to the exercise of its regulatory and supervisory functions, including the statutory ‘have regards’ in sections 30D and 30E of the Bank of England Act 1998^{footnote [4]} and the recommendations contained in HM Treasury’s 2025 remit letter to FMIC.^{footnote [5]} The following factors, to which the Bank is required to have regard, were significant in the Bank’s analysis of the proposal:

• The need to use the Bank’s resources in the most efficient and economic way (Bank of England Act 1998): Under the Review and Testing of Models and Parameters Part of the CCP Rulebook and the Bank’s draft statement of policy on supervisory processes and margin permissions, a CCP must obtain the Bank’s approval before accepting a new type or form of collateral. This outcomes-based approach supports the efficient and economical use of supervisory resources by building on existing permissions, governance and supervisory assessment processes.
• The desirability of sustainable growth in the economy of the UK in the medium or long term (Bank of England Act 1998): The draft SS, which will apply to current and future forms of collateral, may contribute to sustainable growth by supporting responsible innovation in wholesale UK financial markets, improving market efficiency and supporting overall UK competitiveness.
• The principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity should be proportionate to the benefits (Bank of England Act 1998): CCPs are not mandated to accept tokenised collateral types and the draft SS does not prescribe specific methods for meeting regulatory requirements. It is intended to allow CCPs wishing to accept such collateral types flexibility in determining how best to achieve the relevant outcomes.
• The principle that the Bank should exercise its functions as transparently as possible (Bank of England Act 1998): The draft SS supports this principle by increasing transparency around the Bank’s supervisory expectations and reducing uncertainty for firms assessing whether and how tokenised collateral may be accepted under the existing regulatory framework.
• Streamlining administrative burdens and processes for FMIs to offer new products and services while maintaining high regulatory standards (FMIC Remit Letter from HMT): The draft SS provides greater supervisory clarity on the applicability of existing requirements within a tokenised context rather than creating new requirements. This outcomes-based approach may facilitate the responsible development of new CCP collateral models.
• Promoting the Government’s strategy to maintain and enhance the UK’s position as a world-leading global finance hub (FMIC Remit Letter from HMT): The draft SS may support the UK’s position as a leading global financial centre by providing greater regulatory certainty regarding the treatment of tokenised collateral accepted by CCPs. By clarifying how existing regulatory requirements and supervisory expectations apply in a tokenised context, the draft SS may support the adoption of tokenisation in UK financial markets and help ensure that the UK remains an attractive location for innovation while maintaining high standards of resilience and risk management.

The role of CCPs in supporting financial stability

1.14. Central counterparties (CCPs) place themselves between the buyer and seller of wholesale financial market transactions. By acting as the buyer to every seller and the seller to every buyer in centrally cleared markets, CCPs help mitigate counterparty credit risk and reduce the risk that financial stress is transmitted between market participants. In the UK, CCPs manage hundreds of trillions of pounds worth of notional outstanding financial contracts daily. As a result, CCPs play a critical role in supporting the resilience of the financial system and disruptions to their operations can have wider consequences for financial stability.

1.15. The resilience of central clearing depends in large part on CCPs’ risk management. CCPs utilise a range of tools to manage risk; collateral is a key component and provides financial resources available to CCPs during periods of stress or in the event of a clearing member default. CCPs collect initial margin to cover potential future exposures following a clearing member default, variation margin to address current exposures, and default fund contributions to absorb losses in extreme but plausible market conditions. CCPs also hold a portion of their own dedicated financial resources within the default waterfall.^{footnote [6]} Together, this waterfall of resources helps CCPs contain losses and limit contagion during periods of stress.

1.16. This consultation focuses on the use of tokenised collateral to meet margin and default fund requirements. Given the significant role UK CCPs play in financial markets, it is important that collateral accepted for margin and default fund purposes continues to support the resilience of central clearing. The quality, liquidity and risk characteristics of assets accepted as collateral by CCPs are therefore important to the resilience of central clearing and broader financial stability.

1.17. The collateral that CCPs accept, and the conditions under which these are accepted, may affect overall collateral demand and flows more broadly, given the central role of CCPs within the financial system. As major acceptors of collateral, CCPs could therefore play an important role in adoption of tokenisation at scale across wholesale financial markets. In addition, as key nodes within the wider financial system, CCPs require collateral to meet high standards to support central clearing and may help to build broader confidence in the use of tokenised assets where it meets those standards. The acceptance of tokenised collateral by CCPs could thereby encourage the broader development of, and participation in, resilient and sustainable tokenised financial markets.

1.18. In assessing whether to accept tokenised collateral and applying existing eligibility criteria, CCPs may also contribute to the emergence of common market practices for tokenised collateral arrangements. This could support the development of robust, interoperable and modernised infrastructure, while promoting greater consistency in how market participants assess the suitability of specific tokenised collateral arrangements.

Scope

1.19. The draft SS sets out our proposed expectations in relation to:

• Liquidity, valuation and interoperability;
• settlement finality;
• credit and concentration risk management;
• operational resilience; and
• custody and safeguarding.

1.20. The proposed expectations in the draft SS focus on areas where tokenisation may give rise to additional considerations relevant to a CCP seeking to accept tokenised collateral. However, these should not be interpreted as a statement of the requirements relevant to tokenised collateral. CCPs remain responsible for complying with all applicable requirements relating to collateral acceptance, risk management and financial resilience under the UK CCP Rulebook. The proposed expectations are intended to supplement, rather than replace, the wider framework of requirements applicable to collateral accepted by CCPs.

1.21. This consultation is focused primarily on tokenised forms of assets that are already used as collateral by CCPs today. Tokenised government bonds may be one of the most impactful use cases for tokenised collateral in central clearing given their widespread use within UK CCPs and therefore serve as a key example throughout this consultation.

1.22. Regardless of technology, any future acceptance of new forms of collateral, or new asset types as collateral, by CCPs will be subject to the relevant regulatory approvals processes. New collateral includes collateral with risk characteristics that are not identical to those of collateral already approved by the Bank, including where differences arise from the method of delivery, credit risk or liquidity profile. Where a CCP seeks to accept a new collateral type, including tokenised forms of collateral already accepted, it is expected to demonstrate as part of the relevant regulatory approval process that the asset meets the relevant criteria under the proposed statement of policy on the Bank’s approach to supervisory processes and margin permissions^{footnote [7]} and that it can appropriately manage the risks associated with its use.

1.23. Further, once the new section 138BA permissions power under the Financial Services and Markets Act 2000 is in force, CCPs will have flexibility to seek the Bank’s permission to modify the CCP Rulebook where the relevant criteria are met. This is consistent with our approach to innovation. In assessing applications relating to new forms of collateral, the Bank will take a proportionate approach, having regard to the nature and scale of the proposed arrangement. The Bank is supportive of applications involving innovative collateral arrangements where appropriate risk mitigants are in place.

1.24. While this consultation does not propose changes to the existing list of eligible collateral under the draft CCP Rulebook, Section 3 seeks views on the risks and benefits of potential future tokenised collateral types and whether proposed expectations within the SS would remain appropriate should these become eligible in the future.

1.25. The Bank recognises that the practical adoption of tokenised collateral arrangements will also depend on wider legal, regulatory and market infrastructure developments. This includes arrangements related to the recording and holding of tokenised securities. These wider dependencies will influence the development of tokenised collateral markets over time and are discussed in Section 2 on conditions for the responsible adoption of tokenised collateral.

1.26. The proposed expectations in this consultation will apply to UK CCPs. They will also apply to recognised non-UK CCPs that the Bank has determined to be, or are likely to become, systemically important to UK financial stability.

1.27. This consultation may also be of interest to other stakeholders, including:

• firms clearing or intending to clear as clearing members or as clients of UK CCPs;
• non-UK CCPs that intend to provide clearing services in the UK, or who currently provide clearing services in the UK under post-Brexit transitional regimes, or who are recognised to provide clearing services in the UK under UK EMIR Article 25; and
• industry groups and trade bodies.

Structure of this consultation

1.28. This consultation is structured as follows:

• Section 2 examines innovation in collateral management and considers the associated opportunities and challenges. It also considers how a broader transition towards a tokenised financial system may affect collateral management and financial stability through the lens of CCPs and their role in the financial system.
• Section 3 explains the scope of the draft SS, which sets out the Bank’s expectations for the acceptance of tokenised forms of collateral currently eligible under the CCP Rulebook. While the draft SS has been developed primarily in the context of collateral accepted by UK CCPs today, the Bank is also interested in whether proposed expectations would remain appropriate for a wider range of tokenised collateral in the future, including tokenised money market fund units, gold and stablecoins. The Bank welcomes views on the potential applicability of proposed expectations to other such assets, should they become eligible in future.
• Annex 1 contains the draft SS setting out the Bank’s expectations.
• Annex 2 contains a glossary of terms used.

2: Innovation in CCP collateral management

Industry engagement and feedback

2.1. In May 2026 the Bank and FCA published a Call for Input on the safe adoption of tokenisation in UK wholesale financial markets. This Call for Input (CfI) built on the Government’s Wholesale Financial Markets Digital Strategy (WFMDS), which identified tokenisation as a significant opportunity, particularly in relation to post-trade processes and collateral. In September 2026, the Bank and Financial Conduct Authority (FCA) published a Feedback Statement summarising responses to the call for input and will share a more detailed roadmap later this year.

2.2. The CfI and detailed roadmap also support the role of the Government’s Wholesale Digital Markets Champion. In July 2026, the Government’s Wholesale Digital Markets Champion published an initial report on how the UK develops a tokenised wholesale financial market infrastructure and how the sector implements the Government’s WFMDS. This report established industry action groups to support the practical implementation of tokenisation use cases, including Action Group 3, which will focus on collateral. Related work is also being taken forward through international initiatives, including the UK-US Transatlantic Taskforce for Markets of the Future,^{footnote [8]} which has identified the use of tokenised assets as collateral in wholesale markets as an area for UK-US financial services collaboration.

2.3. The Bank’s consideration of tokenisation in central clearing has been informed by ongoing engagement with industry. This includes responses to the joint Bank-FCA CfI, bilateral engagement with firms, and feedback received in response to the Bank’s consultation on Ensuring the resilience of CCPs.^{footnote [9]} Together, this engagement as well as the WFMDS have reinforced collateral management as a priority area to support the development of tokenised markets. Feedback has consistently identified tokenised collateral as a particularly promising near-term use case for tokenisation in wholesale markets.

2.4. Respondents to engagement highlighted potential benefits including greater transparency over collateral positions, greater automation, programmability and more streamlined collateral management processes. Respondents also pointed to the potential for near-real time collateral mobility and velocity, including the ability to move collateral outside traditional market operating hours and across jurisdictions. Firms noted that these features could potentially support more efficient liquidity management within firms and the satisfaction of margin requirements across clearing members and clients.

2.5. At the same time, respondents emphasised that the realisation of these benefits would depend on addressing practical challenges. These included the operational readiness and resilience of tokenisation technologies, cyber risks, interoperability between legacy and tokenised infrastructures, and the availability of acceptable custody and safeguarding solutions. Firms have also noted the importance of legal certainty regarding the status of tokenised assets, including where settlement finality occurs, how ownership rights are conferred and enforced, and how such collateral would be treated in a default.

2.6. Consistent with this, there was broad support for the Bank to retain a technology-neutral and outcomes-based approach. Respondents agreed that tokenisation should not in itself determine regulatory treatment. Feedback suggested that targeted supervisory clarity may be helpful in certain areas where CCPs seek to accept tokenised versions of eligible collateral while maintaining existing risk management standards. Respondents generally expected early adoption to focus on tokenised forms of existing, widely accepted collateral, such as government-issued securities. Some also expressed interest in the potential use of a broader range of tokenised assets as collateral. There was also support for an approach that enables CCPs to gain practical experience of tokenised collateral and its performance in normal and stress conditions.

Opportunities of tokenisation for collateral management

2.7. Tokenisation is being explored against a backdrop of frictions in wholesale markets. It may help address some of these frictions by improving the visibility, mobilisation and transfer of collateral. However, more speed and automation may also alter existing risk-management dynamics and introduce new dependencies. This section considers a range of potential benefits and risks for CCPs and highlights some broader financial stability implications.

2.8. Frictions currently exist across the trade lifecycle including issuance and maintenance, trading, clearing and settlement.^{footnote [10]} Many of these frictions are particularly evident where activities must be coordinated across multiple systems. For example:

• Issuance and maintenance: limited automation of corporate lifecycle events requires manual intervention.
• Trading and lending: collateral movements may be constrained by opening hours and speed of infrastructure.
• Clearing: there may be delays between market moves, margin calls and actual collateral delivery which can require firms to either pre-position required collateral or maintain collateral buffers to ensure margin obligations can be met as required.
• Securities settlement: there may be constraints due to operating hours and the need to coordinate across multiple intermediaries and their records.

2.9. While these frictions are system-wide, they are particularly relevant in clearing. Collateral posted to meet CCP margin requirements often needs to move between a CCP, clearing members, instructed custodians and CSDs, often across multiple jurisdictions. Delays or inefficiencies related to the fragmented infrastructure and processes can affect the speed at which collateral may be mobilised and made available to meet requirements.

2.10. Delays in collateral movement, manual reconciliation and settlement failures can create timing mismatches between changes in exposures and the posting or return of collateral. Inefficiencies in sourcing, mobilising and settling collateral may increase liquidity demands on market participants, requiring them to pre-position collateral or maintain larger collateral buffers than would otherwise be necessary. These pressures may become more acute during periods of market stress, when margin requirements can increase rapidly and firms may need to mobilise collateral at short notice. These challenges have contributed to growing industry interest in whether tokenisation could address some of these issues and support improved collateral utilisation and optimisation.

2.11. Technological developments are creating new ways in which financial assets can be issued, recorded, transferred and settled. In particular, market participants are increasingly exploring tokenisation, whereby assets may be represented in digital form using distributed ledger technology (DLT) or similar technologies.

2.12. Tokenisation may involve the creation of a digital representation of an existing asset (a ‘digital twin’) or the issuance of an asset directly in digital form (a ‘digitally native asset’). Subject to the legal rights attaching to the token and any applicable eligibility requirements, tokenised assets could potentially be used as collateral in central clearing in much the same way as traditional assets.

2.13. The increasing interest in tokenisation reflects the potential for DLT and associated technologies to change how collateral is mobilised within the financial system. The features associated with tokenisation may reduce the need for multiple parties to maintain and reconcile separate records. Smart contract functionality may support the automation of processes such as margin calls and collateral substitutions where required.

2.14. More generally, tokenisation could enable collateral to be pledged and transferred more efficiently between market participants, thereby improving its availability and useability across the financial system. Reflecting this potential, market participants are exploring the use of tokenised collateral in central clearing. Regulators in a number of jurisdictions, including the US and EU, are also exploring how to support this innovation.

2.15. At the same time, tokenisation may introduce new legal, liquidity, operational and other risk management considerations. For example, the use of smart contracts may introduce new forms of automation into CCP risk management processes requiring authorities to understand their implications and how existing regulatory frameworks apply.

2.16. The characteristics of the underlying ledger may also give rise to additional considerations. To support its understanding of these issues, the Bank participated in a wholesale settlement DLT Innovation Challenge with the Bank for International Settlements Innovation Hub (BISIH) London Centre and private sector participants, exploring the implications of incorporating DLT into wholesale central bank settlement where the central bank does not operate or control the ledger. Findings from the Challenge highlighted additional considerations that may arise in more decentralised public permissionless ledgers in wholesale markets, including the possibility of probabilistic settlement finality and governance arrangements that may rely on off‑chain processes. These features may create challenges for accountability and operational resilience that would need to be appropriately managed.

2.17. In addition, tokenisation may change how, and by whom, recording, custody and settlement functions are performed. These may become increasingly distributed across multiple entities, including issuers, tokenisers, technology providers, and custodians.

2.18. Over time, tokenisation could also support a broader range of collateral assets to meet eligibility requirements. For example, certain assets may currently be operationally difficult to mobilise and use as collateral, particularly where such assets rely on complex redemption processes. Tokenisation could increase the useability of assets by improving their transferability such that they now appeal to a wider set of participants. This could increase and diversify the overall pool of market participants and liquidity, as well as enabling collateral to be more easily mobilised across infrastructures, jurisdictions and time zones. A broader range of collateral could reduce reliance on particular assets and ease concentrated selling pressures during periods of stress where firms need to raise cash to meet margin obligations. If realised, these benefits could support CCP resilience and contribute positively to financial stability.

2.19. The benefits of tokenisation may not arise solely from the tokenisation of collateral itself but also from changes to the underlying market infrastructure, or ‘rails’ through which collateral is recorded, transferred and settled. As discussed above, tokenisation may change how certain recording, custody and settlement functions are performed. For example, DLT-enabled infrastructures would support faster collateral mobilisation, extended operating hours, greater automation and more seamless transfers across market participants and jurisdictions. These developments could affect the speed, timing and efficiency of collateral movements, including how collateral is utilised to meet margin requirements.

2.20. Ultimately, whether the benefits arise from the tokenised collateral itself or from changes to the infrastructure supporting its use, a CCP must be able to access and realise collateral reliably when required, including following a clearing member default. A CCP will continue to rely on a number of core functions to receive, control and realise collateral. As indicated by the CfI and the Digital Market Champion’s report, several wider developments may influence how tokenised markets evolve over time. For CCPs, this includes functions that are currently performed by CSDs and custodians. In many cases, assets that are widely used as CCP collateral in the UK today, including government securities, are settled and recorded through CSD arrangements and the route to realising the value from that collateral is established. Box A outlines these functions in the context of securities collateral. Box B explores how the value of collateral is realised, for example in a default, and how this might change in a tokenisation arrangement. These boxes provide background context for the draft SS.

Potential implications for financial stability

2.21. Tokenisation could introduce dynamics to collateral and wholesale markets which contribute risks to financial stability. While some aspects of current collateral and settlement processes may be operationally inefficient, the frictions they create can also provide time for liquidity management and intervention during periods of stress. Moving to faster or more automated arrangements may therefore improve efficiency while reducing these buffers.

2.22. Current collateral arrangements may allow for market participants to respond to changes in market conditions when posting collateral. Reducing lags in collateral transfers may free up resources that would otherwise remain committed during the settlement period, but it may also reduce the opportunity for intervention if needed. Tokenised collateral arrangements which allow collateral to move at instant, or near-instant speed can reduce the need for collateral buffers but could mean that resources are not easily available to absorb shocks in difficult market conditions.^{footnote [11]} Over time, firms may consider they need to hold less additional collateral over the settlement period ‘just in case’. While this may improve efficiency, risks could arise if firms become less prepared to meet obligations in unexpected stress. If such changes became widespread and entrenched, they could constrain firms’ ability to maintain immediate access to eligible collateral for liquidity during periods of stress,^{footnote [12]} potentially increasing the financial system’s sensitivity to shocks. These challenges may become more pronounced as financial markets move towards increasingly shorter settlement cycles which will reduce the time available to transfer collateral and meet obligations.

2.23. There are other risks associated with tokenised collateral arrangements. While purely automated processes, via programmable smart contracts, may enable margin calls or collateral substitutions to occur more rapidly and with less manual intervention, they may also reduce the time available for firms to assess market developments and exercise judgement where appropriate. Automated actions may lack accountability and could be executed mechanically once pre-defined conditions are met. In some circumstances, this could affect the way individual firms manage risk as well as how stress is transmitted through the financial system. For example, if a large number of market participants rely on the same smart contract programmes, actions taken as part of collateral management could end up synchronised, potentially leading to correlated liquidity demands where firms need cash or other collateral at the same time. This risk may be more pronounced by endogenous and exogenous features, such as if the smart contract is compromised or where markets operate on an extended or near-24x7 basis.

2.24. This increases the importance of effective controls over automated processes, including for human judgement, accountability and intervention during periods of disruption or stress. To the extent that such safeguards are necessary, the efficiency benefits associated with automation and near-24x7 operation may be more limited than their theoretical potential suggests. Tokenised collateral arrangements may also introduce new technologies, entities and interconnections that affect a CCP's ability to access, value and realise collateral rapidly during periods of market stress or clearing member default.

Conditions for sustainable adoption of tokenised collateral

2.25. There will likely be a number of ‘forms’ of interoperability that will be important to realising the benefits of tokenisation. Interoperability between assets, platforms and infrastructures will be particularly important, alongside interoperability between traditional assets and their digital twins. To be effective, interoperability must exist at domestic and international level so that tokenised collateral may be mobilised more efficiently across markets and jurisdictions, reducing delays associated with collateral transfers. Conversely, limited interoperability could trap collateral within sectors or borders and reduce liquidity from the level that exists today by contributing to fragmentation.

2.26. The development of liquid markets, with diverse participation, in tokenised assets will also influence the extent to which tokenised collateral can be adopted at scale. Industry initiatives, including proposals relating to a UK digital gilt instrument (‘DIGIT’) may contribute to the availability of high-quality tokenised assets that could support the development of tokenised collateral arrangements.

2.27. Many of the factors influencing the benefits and costs of tokenised collateral arrangements extend beyond the scope of CCP activity and regulation alone. A number of these are being explored as part of the response to the BoE-FCA CfI on the future of tokenisation in UK wholesale financial markets, including the development of a detailed Roadmap, as well as through initiatives taken forward by the Digital Markets Champion. Outcomes will also depend on wider market, legal and regulatory developments, including industry approaches to interoperability as well as statutory developments relating to settlement finality and the treatment of tokenised collateral in insolvency scenarios.

2.28. Tokenised collateral arrangements may give rise to considerations relating to the recording and holding of securities and the functions currently performed by CSDs. The Bank recognises that the current regulatory framework, including applicable requirements relating to holding collateral under the Investment Policy Part of the CCP Rulebook, may affect the extent to which certain tokenised collateral arrangements can be accommodated within the existing requirements. In this regard, the Bank is considering, alongside the FCA and HM Treasury, how to achieve its ambition of a comprehensive regulatory regime for the issuance and settlement of digital securities, supporting UK capital markets. Pending any such reforms, interim solutions may be available in certain circumstances, including through use of the Bank’s existing permissions powers to enable the acceptance of tokenised securities recorded either at a Digital Securities Depository (DSD) rather than a CSD or that are held with a regulated custodian.

2.29. The realisation of benefits associated with tokenisation more broadly will also depend on the availability of appropriate settlement arrangements for any associated cashflows. Although the transfer of collateral to a CCP will not in every case involve a corresponding cash leg, the absence of on-chain cash settlement solutions may mean certain frictions in the overall trade lifecycle are likely to persist. As such the Bank, working alongside industry, is designing a new RT2 (renewed RTGS service) synchronisation capability. In October 2025, the Bank launched a Synchronisation Lab to provide a platform for firms to experiment with synchronised and atomic settlement in central bank money and help unlock the benefits of tokenisation while maintaining settlement in the safest asset available. Building on learnings from the Lab, the Bank will continue to develop the synchronisation service, allowing new synchronisation operators to orchestrate settlement of new digital asset ledgers with central bank money held in RTGS accounts, with delivery targeted for 2028.

Question 1: What do you consider to be the most relevant use cases for tokenised collateral in central clearing, and what existing frictions or limitations would those use cases address? In your response, please also identify the timeframe over which you expect these use cases to emerge.

Question 2: How might the wider adoption of tokenised collateral, or the infrastructure supporting its use, alter the way market participants manage collateral and liquidity? In your response, please comment on whether, and under what conditions, tokenisation could affect firms’ preparedness, collateral optimisation practices, and collateral and liquidity management processes. Please also consider the potential implications this may have for CCP resilience and financial stability.

3: Scope of supervisory statement for current and potential forms of CCP collateral

Scope of the draft supervisory statement

3.1. The draft SS in Annex 1 has been developed primarily in context of tokenised forms of collateral that are currently eligible and accepted by UK CCPs under the existing framework. Drawing on the considerations discussed in Section 2, it reflects the important role that CCPs play in the financial system and the requirements set out in the CCP collateral rules. It focuses on areas where the Bank considers additional clarity would be most valuable and where industry feedback indicated further guidance would be welcomed.

3.2. The draft SS is designed to be outcomes-focused and, where appropriate, applicable to other tokenised asset types should their use as CCP collateral increase over time. Consistent with the Bank’s approach to supporting responsible innovation, we remain open to considering additional collateral types in the future where they can meet the standards expected of CCP collateral.

3.3. Some digital assets may be capable of meeting the requirements for eligible collateral under the existing framework. Should CCPs wish to explore them, the Bank encourages early engagement.

Question 3: Do you have any feedback on the supervisory statement? Are there any areas where additional guidance would support CCPs in exploring tokenised versions of currently eligible and accepted collateral?

Potential use of ‘new’ tokenised assets

3.4. The Bank also seeks views on whether the expectations within the draft SS would remain appropriate for a broader range of tokenised collateral. This could include tokenised collateral types that are not currently accepted by UK CCPs but are of interest to market participants. This consultation does not propose changes to eligible collateral in the CCP Rulebook.

3.5. A broader range of assets could support innovation in collateral management by expanding the collateral options available to market participants. However, any such assets would need to satisfy the necessarily high standards expected of CCP collateral, including in relation to liquidity, enforceability and other risks. Some potential collateral types may also give rise to additional considerations that are not fully captured by the draft SS, in a similar way to those captured by the conditions set out in the Collateral Part of the CCP Rulebook.

3.6. Feedback indicates interest across industry in stablecoins, tokenised money market fund units (tMMFs) and tokenised gold as potential future collateral types. These collateral types may also be explored through other workstreams, for example stablecoins and tMMFs may be explored through the UK-US Transatlantic Taskforce for Markets of the Future. The examples below illustrate some of the considerations that could arise in the future should CCPs wish to explore accepting such assets as collateral:

Regulated stablecoins:

• Stablecoins may not currently be accepted by CCPs as highly liquid collateral. Making stablecoins eligible as CCP collateral would therefore require a change to the CCP Rulebook or for a firm to obtain the Bank’s permission to waive or modify the relevant rule, alongside any other applicable regulatory approvals. If regulated stablecoins were permitted as CCP collateral, there could be specific risk management considerations. These could relate to the stablecoin’s backing assets, their value and quality, how they are held and segregated and any legal rights of token holders to the backing assets. The CCP may need to consider whether the stablecoin value could deviate materially from the value of its backing assets and the implications this might have on liquidation. Confidence in a stablecoin could also be tied to its issuer, and the nature of redemption arrangements where a CCP may need to be satisfied that it can value the stablecoin with confidence and reliably convert it into cash when required.
• Where the stablecoin is subject to an appropriate regulatory regime that addresses the above matters, the relevant requirements may mitigate some of these risks. Nonetheless, a CCP would remain responsible for determining whether the acceptance of the stablecoin is consistent with its internal risk appetite and risk management framework.

Tokenised money market fund units:

• Considerations may arise relating to a CCP’s ability to realise the value of the unit, when required. Relevant factors could include whether there are barriers to redemption, both within the tMMF structure itself and, where relevant, in converting units between tokenised and traditional forms. A CCP may also need to consider the extent to which redemption timelines, operating arrangements and liquidity characteristics could affect its ability to access value in a timely manner.
• MMFs and tMMFs may be used as a source of liquidity both within central clearing and across wider financial markets. This may have implications for considerations such as margin procyclicality. For example, increases in margin could contribute to rapid redemption from MMFs or tMMFs, potentially exacerbated by the speed and ease with which tokenised collateral can be mobilised with potential implications for financial stability more broadly.
• The behaviour of MMF and tMMF holders may also depend on characteristics of the underlying assets. For example, MMFs invested primarily in public debt instruments have historically experienced fewer outflows during periods of stress. However, such funds may also exhibit correlations with other assets backed by public debt, which could be relevant to a CCPs assessment of concentration and liquidity risks.

Tokenised gold:

• The tokenisation of gold may support its usability as collateral for central clearing. For example, tokenisation could support utilisation of smaller units or simplify operational complexities.
• CCPs are able to accept gold as collateral in the UK, subject to it meeting specific conditions set out in the existing framework, including that it constitutes allocated pure gold bullion of recognised good delivery. Tokenisation of gold might impact whether these conditions continue to be met. For example, if tokenisation breaks the link to the underlying allocated gold bullion, the asset may no longer satisfy the relevant criteria for gold collateral in the CCP Rulebook. Depending on the structure of specific proposals, tokenised gold arrangements may instead be more appropriately assessed against the criteria for financial instruments in the CCP Rulebook.
• The Bank is aware that industry have been exploring the use of tokenised gold within wholesale markets. The FCA have also issued a call for input for tokenised gold.^{footnote [13]}

3.7. The Bank is aware that regulatory authorities in other jurisdictions are considering the use of (regulated) stablecoins, tMMF units and other tokenised assets as collateral. These assets may already be subject to regulatory regimes which support their resilience, but this does not predict their suitability for use within CCPs. For example, the Bank has set out a regime for sterling-denominated systemic stablecoins,^{footnote [14]} which are used widely in payments, and money market funds are subject to international standards. The Bank is interested in evidence and practical experience from exploration of these collateral types, including implications for collateral quality and risk management, and any relevant interactions with other regimes.

Question 4: To what extent would the supervisory expectations proposed remain appropriate for a broader range of tokenised collateral, including but not limited to those mentioned above? This could include tokenised forms of collateral that are currently eligible but not accepted or currently ineligible but are of interest to market participants.

Question 5: What benefits, risks and practical considerations should the Bank consider in relation to appropriately regulated stablecoins, tokenised MMFs and tokenised gold as potential future forms of CCP collateral? Please share any supporting evidence or analysis where available.

4: Next steps

4.1. The consultation period for this publication closes on 12 February 2027. The Bank invites feedback on the questions and accompanying supervisory statement set out in this consultation. Responses should be submitted by email to Tokenised_Collateral_At_CCPS_CP@bankofengland.co.uk.

4.2. When providing a response, please indicate whether you consent to the Bank publishing your name and/or the name of your organisation as a respondent to this consultation.

4.3. Please also indicate if you believe any proposals in this CP are likely to impact persons who share protected characteristics under the Equality Act 2010 and explain the nature of those impacts.

4.4. Responses may be shared with HM Treasury and the Financial Conduct Authority. HM Treasury and the FCA may review responses and contact respondents to seek clarification where appropriate.

4.5. This consultation forms part of the Bank's broader work on tokenisation and innovation. The Bank will continue to engage with the FCA, HM Treasury and industry on a wider programme of work to support the safe adoption of tokenisation and provide greater clarity regarding the future development of UK wholesale markets.

4.6. The proposals in this consultation should also be considered a part of wider reforms relating to the UK regulatory framework for CCPs, including the transition from UK EMIR to the Bank’s CCP Rulebook.

Annexes

• Annex 1: Draft supervisory statement on the acceptance of tokenised collateral by CCPs

  1: Introduction

  1.1. This supervisory statement (SS) sets out the Bank of England’s (Bank’s) expectations for central counterparties (CCPs) seeking to accept tokenised forms of collateral. The expectations set out follow the Bank’s principles-based and outcomes-focused approach.

  1.2. The Bank considers that tokenised assets support innovation in central clearing and in the wider development of tokenised financial markets. The acceptance of tokenised assets by CCPs could support confidence in the adoption of tokenised collateral where these meet the relevant requirements and expectations.

  1.3 This SS is concerned with tokenised forms of collateral that are eligible for use by a CCP under the Collateral Part of the Bank’s CCP Rulebook, as consulted upon in July 2025.^{footnote [15]} As with non-tokenised assets, tokenised forms of collateral may be eligible as collateral at a CCP where they meet the relevant requirements in the CCP Rulebook and can be risk managed in a manner that safely supports the purpose of collateral. A CCP seeking to accept new collateral must follow the process set out under the draft statement of policy on the Bank’s approach to supervisory processes and margin permissions.^{footnote [16]} New collateral includes all new collateral types with risks not identical to those already approved by the Bank, including where differences arise from the method of delivery, credit risk or liquidity profile.

  1.4. This SS is relevant to all CCPs established in the UK and entities that are planning to apply to the Bank for a recognition order as a UK CCP under Section 290 of Financial Services and Markets Act 2000.^{footnote [17]}

  1.5. The Bank considers that CCPs’ acceptance of tokenised forms of assets currently eligible for use as collateral in central clearing may offer benefits to both CCPs and their members, including improved efficiency in collateral mobilisation, transfer and management.

  1.6. The Bank supports responsible innovation and applies a proportionate, outcomes-focused and technology neutral approach to the supervision of FMIs, making space for its financial stability objective to be achieved in different ways. In supervising CCPs accepting tokenised collateral, the Bank will apply its existing approach to supervising FMIs,^{footnote [18]} which is judgement-based, forward-looking, risk-based and proportionate.

  1.7. This SS is intended to support innovation by reducing uncertainty around the Bank’s expectations for CCPs considering the acceptance of tokenised collateral. It does not prescribe particular technologies, legal structures or operational models for tokenised collateral. The Bank intends its expectations to be applicable across different tokenised collateral arrangements and developments in technology and market practice, provided the relevant regulatory outcomes continue to be achieved. These outcomes include supporting effective risk management and orderly default management in both normal and stressed market conditions.

  1.8. This SS is structured as follows:

  • Section 2 explains the key concepts used in this SS. These are provided solely to assist interpretation and are not intended to establish legal, regulatory or technical definitions.
  • Section 3 sets out the Bank's supervisory expectations regarding CCP acceptance of tokenised collateral, focusing on liquidity, valuation and interoperability; credit and concentration risk; settlement finality and certainty of ownership; operational resilience; and custody and safeguarding. Section 3 also includes illustrative examples of how CCPs may apply these expectations when considering tokenised collateral acceptance.

  Particularly relevant rules in the Bank’s CCP Rulebook

  1.9. The expectations in this SS are grounded in, and should be read alongside, the CCP rules set out in the CCP Rulebook and relevant CCP-applicable rules and supervisory expectations (hereon ‘applicable requirements’).

  1.10. While a CCP should consider all applicable provisions of the CCP Rulebook, the Bank considers the Collateral Part, Review and Testing of Models and Parameters Part, Management and Governance Part, Investment Policy Part, Margin Part and Operational Resilience Part, to be particularly pertinent to the matters discussed in Chapter 3 of this SS, alongside the Fundamental Rules. CCPs should also have regard to relevant international standards, including the Principles for Financial Market Infrastructure (PFMI).

  1.11. This SS does not limit, replace or amend any applicable requirements and should not be interpreted as identifying all provisions relevant to the acceptance of tokenised collateral.

  2: Key concepts

  Use of terminology

  2.1. The concepts used in this SS are provided solely to assist interpretation of the expectations set out and are not intended to provide established legal, regulatory or technical definitions. They also do not supersede terminology used elsewhere in legislation, regulation or supervisory guidance.

  Settlement finality

  2.2. Settlement finality refers to the point at which a transfer of an asset becomes irrevocable and unconditional. In the context of a tokenised collateral arrangement, it may be useful to distinguish between contractual settlement finality and legal settlement finality.

  2.3. Contractual settlement finality generally describes the point within a tokenised arrangement at which a transaction is treated as final according to the rules of the token arrangement. This does not, by itself, establish legal settlement finality.

  2.4. Legal settlement finality generally refers to the principle that, after a certain point specified once settled, the transfer of an asset cannot be unwound, revoked or challenged in the event of the insolvency of a participant in a designated system. In the UK, for designated systems, this protection is provided under the Settlement Finality Regulations.^{footnote [19]}

  Tokenisation-related terms

  2.5. Tokenisation refers to the process of creating a digital representation of an asset using distributed ledger technology (DLT) or similar technologies on a programmable platform.

  2.6. Tokenised collateral refers to collateral that has been tokenised, including digital representation of rights, ownership or interests in collateral.

  2.7. Tokenised collateral arrangement refers to the end-to-end legal, governance, operational, technological and other arrangements through which such tokenised collateral is issued, represented, held, transferred or managed or realised.

  2.8. Tokeniser generally describes an entity that creates a tokenised representation of an asset issued on a programmable platform.

  3: The Bank’s expectations regarding tokenised forms of eligible collateral accepted by CCPs

  3.1. The expectations in this section do not create additional requirements for collateral, nor are they intended to imply that tokenised collateral is inherently more risky than non-tokenised collateral.

  3.2. The Bank does not expect CCPs to apply these considerations as binary tests nor to presume that the identification of a particular risk should automatically determine the outcome of a collateral assessment. Rather, CCPs should consider all relevant factors and determine whether any risks arising from a tokenised collateral arrangement can be appropriately managed and be able to demonstrate how they have reached that assessment. CCPs must continue to follow regulatory approval processes before accepting new forms of collateral, and decisions on whether a CCP’s internal risk management frameworks are adequate will also need to be considered as part of the CCP’s own governance processes. The considerations in this section are intended to inform, rather than determine, those judgements.

  Liquidity, valuation and interoperability

  3.3 A CCP should demonstrate that it has considered how a tokenised collateral arrangement would operate in practice and its ability to transfer and realise the collateral within required timeframes, in both normal and stressed conditions. While these dynamics may change as the market for tokenised assets grows, and the depth of and participation in these markets adjusts, a CCP should demonstrate that it has considered factors affecting liquidity and realisability of the tokenised collateral based on the evidence available at the time of application.

  Liquidity and valuation characteristics of the tokenised collateral

  3.4. A CCP should assess whether any features of a tokenised collateral arrangement could materially affect the liquidity, valuation or realisability of the collateral. Relevant considerations may include how liquidity is generated and evidenced, how prices are formed, the availability and reliability of market data, whether tokenised and non-tokenised forms are readily convertible, and the extent to which liquidity relies on conventional markets, tokenised markets or interactions between the two.

  3.5. As an example of how an existing rule may apply in the tokenised context, in assessing compliance with Rule 8.3 in the Collateral Part of the CCP Rulebook, which requires a CCP to mark-to-market its collateral on a near to real-time basis and, where this is not possible, to manage the related risks, a CCP should understand whether differences between tokenised and non-tokenised markets could affect the reliability of information used to value collateral in both normal and stressed market conditions. Where a non-tokenised equivalent exists, a CCP should understand any material differences in the liquidity characteristics between tokenised and non-tokenised forms. For tokenised collateral with actively traded non-tokenised equivalents, a CCP should assess the liquidity characteristics of the tokenised collateral in its own right, as well as the extent to which liquidity may be supported by conventional markets and arrangements facilitating conversion between tokenised and non-tokenised forms. In doing so, a CCP should understand the basis on which tokenised collateral is valued, including the relationship between any token price and the value of any underlying asset, and whether valuation inputs remain reliable during periods of market stress.

  3.6. For instance, a token linked to an underlying bond held and settled through a CSD may benefit from the liquidity and price discovery available in the conventional market for the underlying bond. However, a CCP should not assume that the tokenised collateral exhibits the same liquidity characteristics as its non-tokenised equivalent. Where the tokenised and conventional markets operate on different schedules, liquidity conditions and price formation may diverge, particularly where trading in the tokenised asset continues during periods where the conventional market is closed. There may also be correlated demand for liquidation across tokenised and non-tokenised forms of the same asset. A CCP should consider this in the context of their risk mitigation measures.

  3.7. For tokenised collateral where no equivalent conventional markets exist, a CCP should adopt an appropriately conservative methodology and assess, on an ongoing basis, how market depth and liquidity evolve over time and whether adjustments to its risk management approach are warranted.

  Dependencies affecting liquidation and realisation of the tokenised collateral

  3.8. In assessing the liquidity characteristics of the collateral, including whether there is reliable access to outright sale or repurchase agreement (repo) markets under Rule 4.1(5) in the Collateral Part of the CCP Rulebook, a CCP should understand any dependencies that could affect its practical ability to liquidate, mobilise or otherwise realise the value of that collateral in normal and stressed conditions. Potential considerations may include:

  • dependencies on conversion between tokenised and non-tokenised forms;
  • dependencies on specific platforms, venues, custodians, service providers or market participants;
  • constraints on interoperability between tokenised and non-tokenised forms of collateral or across relevant infrastructure; and
  • governance arrangements or permissioning structures that could affect the transfer, mobilisation or liquidation of the tokenised collateral;

  Credit and concentration risk

  Credit risk arising from the tokenised collateral arrangement

  3.9. A CCP should be able to demonstrate that it has considered and accounted for whether the tokenised collateral arrangement introduces additional or different sources of credit risk.

  3.10. As an example of how an existing rule may apply in the tokenised collateral context, in assessing whether tokenised collateral meets the requirements of Rule 4.1(1) of the Collateral Part of the CCP Rulebook, which requires that a CCP may only accept a financial instrument as highly liquid collateral where it has been issued by an issuer that has low credit risk based upon an adequate internal assessment by the CCP employing a defined and objective methodology, a CCP should consider whether the tokenised collateral arrangement introduces additional entities whose creditworthiness could affect the value, transferability, redemption or realisation of the collateral. This may arise where the value, transferability or redemption of the tokenised collateral depends on entities other than those ordinarily associated with the asset itself. In such cases, a CCP should not assume that the tokenised collateral gives rise to the same credit risk profile as direct exposure to the underlying asset.

  3.11. For instance, where a tokenised representation of a government bond is created by an entity other than the sovereign issuer, a CCP should consider whether its claim remains solely on the sovereign issuer or whether the tokenised collateral introduces a credit exposure to other entities.

  3.12. A CCP should have a clear understanding of the credit risk it might face through a tokenised arrangement and should be able to demonstrate how this has been reflected in its internal credit assessment. For example, this could stem from:

  • entities responsible for creating or maintaining the tokenised representation of the asset (ie the tokeniser);
  • entities introduced by the tokenised arrangement that are not present in the corresponding non-tokenised arrangements, including platform providers, custodians, wallet or other service providers; and
  • the extent to which the failure of these entities could affect the value, transferability, redemption or realisation of the collateral.

  Concentration risk within tokenised collateral arrangements

  3.13. The same asset may be represented in both tokenised and non-tokenised form or tokenised by multiple entities. In establishing and managing concentration within collateral, a CCP should ensure that concentration assessments capture exposures to the same underlying issuer, guarantor or asset, irrespective of the form in which the collateral is represented. Any additional risks that arise from the tokenised collateral arrangement should be considered separately.

  Settlement finality and legal certainty

  Establishing certainty of ownership of the tokenised collateral

  3.14. Different tokenised collateral arrangements may rely on different statutory, contractual or legal methods for settlement finality. Regardless of the approach, a CCP should understand the point at which transfers become final and irrevocable in the specific tokenised collateral arrangement, the legal or contractual arrangements supporting that outcome, and whether the arrangement provides sufficient certainty regarding ownership of the collateral in normal and stressed conditions.

  3.15. For instance, where transfers are reflected on a distributed ledger but ownership records are also maintained by a central securities depository, a CCP should understand which record determines ownership and at what point ownership of the collateral becomes final and irrevocable. Where a token provides a representation of rights to an underlying asset held elsewhere, a CCP should also understand how ownership of both the token and any underlying asset would be evidenced and enforced and be able to demonstrate how this has been reflected in its assessment of the collateral. This could include consideration of:

  • how inconsistencies between records and balances represented across different ledgers, infrastructures or intermediaries may be identified and addressed;
  • who is accountable for maintaining, updating and validating the authoritative ownership record, and how those responsibilities, if performed by different entities, are allocated across the tokenised collateral arrangement;
  • where those functions are performed by different entities, how inconsistencies, errors or delays would be identified and addressed; and
  • how the overall tokenised collateral arrangement would continue to provide certainty of ownership, including in event of operational disruption or service provider failure.

  3.16. A CCP should also consider whether any legal, contractual, governance, whitelisting or technical features of the tokenised collateral arrangement could affect its ability to establish, exercise or enforce its rights in respect of the collateral. As an example of how an existing rule may apply in a tokenised context, in assessing compliance with Rule 4.1(4) of the Collateral Part of the CCP Rulebook, which requires that collateral be freely transferable and free from legal restrictions that could impair liquidation, a CCP should understand whether such features could delay or restrict the liquidation or transfer of the collateral, including in a member default.

  Operational resilience

  Operational dependencies within the tokenised collateral arrangement

  3.17. In line with all applicable rules and guidance, the Bank expects CCPs to understand the end-to-end operational arrangements supporting the tokenised collateral and any dependencies that could affect its security, integrity and availability. This may include understanding:

  • whether changes to a ledger, protocol, smart contract or permissioning arrangements, including those initiated by entities other than the CCP, could affect a CCP’s ability to access, transfer or mobilise the collateral;
  • whether the arrangement relies on interoperability or synchronisation between tokenised and conventional infrastructure, or between different tokenised infrastructures, and the extent to which these can be substituted or replaced; and
  • whether failure of any related interface, bridge or synchronisation mechanism could leave collateral inaccessible or immobilised during a disruption.

  3.18. As an example of applying an existing rule in a tokenised context, Rules 2.1.1 and 2.1.7 in the Operational Resilience Part of the CCP Rulebook require a CCP to remain fully responsible for discharging its obligations where operational functions, services or activities are outsourced, and to retain sufficient expertise and resources to oversee those arrangements and manage the associated risks on an ongoing basis. Where a tokenised representation of a government bond is recorded on a third-party platform and linked to an underlying bond held at a CSD, reconciliation of records between the tokenised platform and the CSD may depend on a bridge operated by a third-party service provider. In accordance with the Rulebook, a CCP should consider whether disruption or failure of that service provider could affect the availability, integrity, transferability or realisation of the collateral. Where a CCP's ability to access, transfer or liquidate the collateral does rely on that bridge, a CCP should understand how those activities would continue in the event of disruption and whether alternative arrangements exist that enable the CCP to continue to access, transfer and realise the collateral in a timely way when required.

  Managing disruption and maintaining access to the tokenised collateral

  3.19. Where a tokenised collateral arrangement relies on various technologies or third parties, a CCP should also understand how the disruption or failure of those dependencies would be identified, managed and recovered from in practice.

  3.20. In assessing how operational disruption could affect a tokenised collateral arrangement, a CCP should consider vulnerabilities in ledgers, smart contracts and other components of the arrangement. A CCP should also consider the maturity and effectiveness of the governance, security and control frameworks supporting the arrangement, as well as the potential impact of cyber incidents, technology failures or data integrity issues, including on a CCP’s own systems.

  3.21. A CCP should understand and be able to demonstrate that it has factored any operational considerations into its assessment of the collateral as well as how effective control of tokenised collateral would be maintained or restored following a disruption. Relevant considerations may include whether disruption could leave the status or location of the collateral or any underlying assets uncertain; whether the loss, compromise or unavailability of cryptographic keys, digital credentials, wallets or permissions could prevent the CCP from exercising control over the collateral; whether automated functionality could continue operating or cease operating in an unintended manner during disruption. CCPs may also wish to consider whether extended or near-continuous operation could result in collateral positions changing unexpectedly at times when relevant market participants do not have the ability to monitor, manage or respond to those changes.

  Custody and safeguarding

  Safeguarding and controlling the tokenised collateral in normal and stressed conditions

  3.22. A CCP should be able to demonstrate that it has considered how the tokenised collateral, including any underlying assets, is safeguarded, controlled and made available in normal and stressed conditions. This includes whether ownership rights, redemption rights and claims can be clearly evidenced and legally enforced, as well as whether the arrangements supporting the holding, control and accessing of the tokenised collateral can provide adequate protection against loss, misuse, unauthorised transfer or other compromise.

  3.23. As an example of how an existing rule applies in a tokenised context, in assessing compliance with Rules 2.3(1) and 2.3(2) in the Investment Policy Part of the CCP Rulebook, which require financial instruments posted as margin or as default fund contributions to be deposited with an operator of a securities settlement system or, where this is not possible, held under other highly secure arrangements with a credit or financial institution, a CCP should understand how ownership, control and access to the collateral would be maintained in normal and stressed conditions. This includes where the arrangement relies on custodians, wallets, cryptographic keys or other third-party service providers.

  3.24. For instance, where a CCP relies on a digital custodian to safeguard tokenised government bonds accepted as collateral and maintain the wallets or cryptographic keys needed to exercise control over that collateral, a CCP should consider whether the disruption, insolvency or withdrawal of authorisation of that custodian could impair its ability to access, transfer or realise the collateral. A CCP should understand how access would be maintained or restored if the custodian became unavailable, including whether alternative arrangements could enable the CCP to have direct access to the collateral where needed.

  3.25. A CCP should understand and be able to demonstrate that it has factored custody and safeguarding considerations into its assessment of the collateral. This could include consideration of:

  • the insolvency or withdrawal of relevant authorisation of any entity responsible for safeguarding the tokenised collateral or any underlying assets;
  • circumstances in which the segregation, identification or recoverability of the tokenised collateral could be impaired;
  • the extent to which access to, control of or transfer of the tokenised collateral depends on the availability, integrity or control of cryptographic keys, credentials or other mechanisms; and
  • circumstances in which vulnerabilities in wallets, cryptographic key management, smart contracts or other components of the tokenised collateral arrangement could result in the loss, compromise, misappropriation or unauthorised transfer of collateral.

• Annex 2: Glossary

  The definitions below are provided solely for the purposes of this consultation and are not intended to establish legal, regulatory or technical definitions.

  Digital twin asset – A digital (token) representation of an off-chain asset, recorded on a programmable platform, where the underlying asset typically remains the authoritative record of ownership and the token represents rights or interests in that asset, subject to the legal structure under which it is issued.

  Digitally native asset – An asset issued, or minted, directly and solely on a programmable platform, where the token constitutes the primary and authoritative record of ownership rather than representing a claim to an asset recorded elsewhere.

  Settlement finality – The point at which a transfer of an asset becomes irrevocable and unconditional.

  Tokenised collateral – An asset accepted by a CCP as collateral, where the asset itself, or a digital representation of rights or interests in that asset, is issued, represented or recorded using DLT or similar technologies.

  Tokenised collateral arrangement – The legal, governance, operational and technological arrangements through which tokenised collateral, and any associated rights or interests, is issued, represented, held, transferred or managed or realised.

  Tokeniser – An entity that creates a tokenised representation of an asset issued by another party on a programmable platform.