The Financial Conduct Authority (FCA) and the Bank of England have outlined joint plans for the development of tokenisation in UK wholesale financial markets.
This is being presented as a long-term vision for the sector, as regulators seek to give firms greater clarity over the adoption of distributed ledger technology (DLT).
In a joint statement published today, the regulators said they want to support the safe adoption of tokenisation across wholesale markets and are seeking industry feedback on how existing rules and market infrastructure may need to evolve.
Tokenisation involves creating digital representations of real-world assets — such as equities, bonds or cash — on distributed ledgers. Regulators said the technology has the potential to improve efficiency across wholesale markets by streamlining processes including issuance, trading and settlement.
The FCA and Bank said firms have called for greater certainty around regulation and market infrastructure as tokenisation develops, particularly in areas such as prudential treatment, tokenised collateral and settlement mechanisms.
The regulators have now opened a discussion on the principles that could underpin future regulation and infrastructure for digital wholesale markets in the UK.
There has been significant interest from the pension market on how tokenisation cold support investments into private markets, such as infrastructure as well as reducing the cost of investing in more liquid assets, such as credit markets.
FCA executive director of markets Simon Walls says tokenisation could “transform wholesale markets”.
He adds: “Tokenisation has the potential to transform wholesale markets — reshaping how assets are issued, traded and settled,” he said.
“We want to support firms in adopting this technology to lower costs, reduce risk and unlock new services, and our partnership with the Bank of England will ensure a common approach across all parts of wholesale markets.”
Walls added that the regulators were seeking to provide firms with the clarity needed “to engage, invest and innovate with confidence”.
Bank of England deputy governor for financial stability Sarah Breeden said the focus was now shifting from experimentation towards implementation.
“The task now is for public and private sectors together to build on these strong foundations, moving from pilots to production to support financial stability and sustainable growth,” she said.
Alongside the announcement, the Bank of England launched a consultation on extending RTGS and CHAPS settlement hours, including proposals for longer operating hours and eventual near 24/7 settlement.
The Bank said the move could support cross-border payments and future settlement models as tokenisation develops.
Meanwhile, the Prudential Regulation Authority (PRA) published updated guidance on the prudential treatment of tokenised asset exposures, as well as innovations involving deposits, e-money and stablecoins.
The FCA also confirmed it will continue work on the regulatory framework for tokenisation, including considering whether its client assets (CASS) regime may need to evolve in response to industry feedback.
The announcement follows the FCA’s recent policy statement on fund tokenisation, as regulators continue efforts to position the UK as a leading market for digital assets and financial market infrastructure innovation.
