ESMA seeks evidence tokenized collateral can be cashed out in crisis

The European Securities and Markets Authority (ESMA) has issued a call for industry feedback on the legal, liquidity, and operational risks associated with tokenized collateral. ESMA wants to know if clearinghouses can access tokenized collateral and convert it into cash during market turmoil. Chair Verena Ross emphasized the need for safe, borderless operations with legal certainty, interoperable systems, and proper oversight.

Tokenized collateral is already being used in European clearing operations as financial institutions aim to meet margin requirements more swiftly. ESMA's review will determine if current EU regulations can ensure clearinghouses can access and liquidate such collateral if a member defaults.

In July 2025, Eurex Clearing launched a collateral service using distributed ledger technology. JPMorgan carried out the first live transaction for Dutch pension investor PGGM, transferring securities from another custody location. The consultation covers tokenized representations of assets in traditional financial infrastructure and those issued directly on distributed ledgers. It also explores how these models interact with stablecoins, central bank money, and tokenized deposits.

ESMA noted that assets may face added risks when tokenized, such as delays due to redemption procedures or transfer restrictions. The authority also asked whether token transfers grant ownership or enforceable rights over the underlying assets.

This consultation follows the Eurosystem's September launch of Pontes, a system that enables financial institutions to settle tokenized asset transactions using central bank money. ESMA believes Pontes can support tokenized collateral arrangements by connecting blockchain-based infrastructure with existing settlement systems.