London Is Open for Tokenized Business
The UK will issue its first Digital Sovereign Bond by early 2025, positioning itself as the first G7 country to provide clear regulatory rules for tokenized assets and stablecoin payments, aiming to attract institutional participation in digital asset markets.
Chancellor Rachel Reeves announced at Mansion House that the UK will issue a Digital Sovereign Bond by early 2025, marking the first G7 country to do so. The move underscores the government’s focus on tokenization and agentic payments, with regulatory clarity expected to unlock real-world asset (RWA) tokenization and permit banks and non-banks to engage in stablecoin payments. The UK’s capital markets, which handle nearly 38% of global foreign exchange turnover and half of interest rate derivatives, are positioned to lead if wholesale markets transition to blockchain-based systems.
On June 30, the Financial Conduct Authority (FCA) published policy statements alongside near-final stablecoin rules from the Bank of England and legislative changes from HM Treasury, forming the UK’s Digital Assets Regime. The regime allows stablecoin payments, aligns crypto firms with traditional finance regulations, and requires existing crypto firms to apply for authorization by October to continue operating. Regulated activities include operating trading platforms, custody, staking, and lending, with safeguarding rules (CASS 17) mandating non-statutory trusts for client cryptoassets and bespoke rules for tokenized securities under CASS 6.
The Bank of England will extend CHAPS settlement hours to 01:30am from September 2027, moving toward near-24/7 operations, though settlement risk remains if tokenized assets and cash settle separately. The Digital Securities Sandbox (DSS) now permits sandbox firms to use stablecoins as settlement assets, enabling on-chain settlement where tokenized securities and stablecoins move together on the same ledger. HM Treasury’s Digital Markets Champion, Chris Woolard, recommended in a recent report that authorities support settlement of tokenized assets in different forms of money and develop models for direct settlement in central bank money via RTGS.
The FCA and Bank of England jointly outlined principles for tokenization, emphasizing accountability for ownership records, equal treatment of tokenized and non-tokenized assets, and preventing market fragmentation. The regime includes strict stablecoin requirements, such as 100% backing at par, legally enforceable redemption rights within a day, and statutory trusts for token holder assets. While the UK’s stablecoin regime is praised for holder protection, it is less commercially attractive to issuers compared to the US or EU due to restrictions like prohibiting interest payments to token holders.