UK regulators find collateral mobility tops tokenisation wish list, but legal finality blocks it
Key points
- Feedback to the Bank of England and FCA identified collateral mobility as the leading benefit of wholesale tokenisation, with 24/7 trading and atomic settlement cited mainly in the context of margin calls outside business hours.
- Respondents pushed back against the regulators' suggestion that settlement finality could be set contractually, arguing it fails to provide insolvency protection against third parties and therefore prevents re-pledging, lending, or margin use of tokenised assets.
- The Bank of England confirmed stablecoin eligibility as settlement assets in the Digital Securities Sandbox, subject to conditions and Treasury regulation changes, and said it will consider tokenised assets as collateral in Sterling Monetary Framework operations including DIGIT.
- The FCA launched a call for input on tokenised gold, including for collateral purposes, adding a further workstream to the UK's tokenisation regulatory agenda.
- The Bank of England plans to release a supervisory statement and discussion paper on central counterparty acceptance of tokenised collateral later in 2026, making that publication a key milestone to watch.
Feedback gathered by the Bank of England and the Financial Conduct Authority (FCA) from their joint call for input on wholesale tokenisation reveals a clear hierarchy of priorities among market participants: faster mobilisation and re-use of collateral ranks as the dominant benefit sought, well ahead of round-the-clock trading or atomic settlement as standalone features. Those latter capabilities attracted attention mainly when framed in a collateral context, such as meeting margin calls outside normal business hours.
The central tension exposed by the feedback concerns settlement finality. The regulators had floated the idea that finality could be established through contractual arrangements rather than primary legislation, but respondents rejected this firmly. Contractual finality, they argued, does not provide protection against third-party insolvency claims, which means assets cannot reliably be re-pledged, lent out, or posted as margin without that statutory backstop. The practical effect is that the prize collateral-mobility benefit the industry most wants is blocked by the very legal uncertainty the regulators had hoped to sidestep. On the finality question, the Bank of England and FCA said only that they are considering what further certainty they can offer at this stage, leaving the gap open.
Separately, the Bank of England confirmed that stablecoins are eligible as settlement assets in the Digital Securities Sandbox, subject to conditions and changes to Treasury regulation. It also signalled willingness to examine whether tokenised assets, including stablecoins, could qualify as collateral in its Sterling Monetary Framework operations, including under the DIGIT facility. The FCA opened a parallel call for input on tokenised gold, partly focused on its use as collateral. Before year-end, the Bank of England is expected to publish a supervisory statement and discussion paper specifically addressing how central counterparties should treat tokenised collateral.