Bank of England opens consultation on tokenized collateral for clearing
Central counterparties would need to show tokenized collateral meets liquidity and risk tests under proposed Bank of England guidance.
The Bank of England has launched a consultation on the potential use of tokenized collateral for clearing, aiming to clarify rules for central counterparties (CCPs) in accepting digital versions of eligible assets. Under present regulations, CCSPs can accept tokenized collateral if the assets meet certain clearing standards. The draft guidance will outline the requirements for CCPs applying under the existing approval process, covering both collateral already accepted and types of collateral that meet proposed UK CCP Rulebook standards but are not currently in use.
The Bank emphasizes that tokenized collateral must maintain its ability to be valued, transferred, and realized, even under stressed market conditions. This move could facilitate faster cross-border transactions, helping firms better manage margin calls. The Bank's deputy governor for financial stability, Sarah Breeden, explained that this initiative aligns with the central bank's broader objective of fostering innovation in financial market infrastructure while ensuring financial stability.
The consultation, which seeks industry input, is set to close on February 12, 2027, with a subsequent policy response and rule publication expected later in the quarter.
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