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

The Bank of England has launched a consultation to enable central counterparties (CCPs) to accept tokenised forms of eligible collateral, aligning with the UK’s wholesale digital financial markets strategy. The move aims to streamline collateral mobilisation and management, potentially improving firms’ responses to margin calls and supporting innovation in central clearing. The Bank emphasises that existing regulatory frameworks do not inherently prevent CCPs from accepting tokenised collateral, provided it meets established standards for valuation, transfer, and realisation, even under stressed conditions.

The proposed Supervisory Statement seeks to clarify how the Bank would assess applications involving tokenised collateral, ensuring consistency with the principle of ‘same risk, same regulatory outcome.’ This approach allows flexibility in how different tokenised collateral arrangements achieve these outcomes. The consultation reflects the Bank’s secondary objective to foster innovation in financial market infrastructure while prioritising financial stability.

The Bank highlights that tokenisation could enhance cross-border collateral management, enabling quicker and more efficient mobilisation across jurisdictions. This development is part of a broader agenda between authorities and industry to facilitate the responsible adoption of tokenisation in financial markets. The consultation invites feedback to refine the proposed framework before implementation.

The consultation underscores the Bank’s commitment to supporting innovation in financial market infrastructure without compromising stability. By providing clearer guidance, the Bank aims to enable CCPs and their participants to explore tokenised collateral arrangements safely and effectively. The initiative is designed to align with the UK’s broader strategy for modernising wholesale financial markets.