The Bank of England says nothing in its rules stops a central counterparty from accepting tokenised collateral. I think that is correct, and it moves the hard question to the applicant: which record proves who owns the collateral when a clearing member defaults.
On 29 October the Bank launched a consultation on tokenised forms of eligible collateral at CCPs. It considers the existing framework “not a barrier” provided the collateral meets the standards required in central clearing, and the news release gives the test: tokenised collateral “must remain capable of being valued, transferred and realised when needed, including in stressed conditions.” Sarah Breeden, Deputy Governor for Financial Stability, said: “Through today’s consultation, the Bank is further delivering its secondary objective for innovation in financial market infrastructure, while maintaining financial stability.”
The strongest case for speed
The argument for tokenised collateral rests on speed. The consultation paper reports that respondents pointed to near real-time collateral mobility, including moves outside traditional market hours and across jurisdictions, and to smart contracts that could automate margin calls and substitutions. If a clearing member can post collateral outside market hours, the argument runs, margin gaps close sooner.
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That is the best version of the argument, and parts of it hold. Faster mobilisation helps a firm meet a margin call. The paper also says a broader pool of eligible collateral could ease concentrated selling pressure in periods of stress, when firms must raise cash to meet margin obligations.
Why the ownership record decides it
Speed on the way in does not settle the question a CCP is paid to answer, which is what happens on the way out. The paper tells CCPs to assess whether collateral can be accessed, transferred and realised in a timely manner after a participant default, and whether dependencies on other entities could affect its availability. Under settlement finality it asks a CCP to understand when transfers become final and irrevocable and whether the arrangement gives “sufficient certainty regarding ownership of the collateral in normal and stressed conditions.”
The paper’s own example shows why that is difficult. Where transfers appear on a distributed ledger but a central securities depository also keeps ownership records, the CCP “should understand which record determines ownership and at what point ownership of the collateral becomes final and irrevocable.” It adds that a CCP should be able to say who is accountable for maintaining the authoritative record and how inconsistencies across ledgers, infrastructures or intermediaries would be found and fixed.
The Bank’s work with the BIS Innovation Hub London Centre adds a caution. Findings from that DLT Innovation Challenge point to the possibility of probabilistic settlement finality and governance that may rely on off-chain processes on more decentralised public permissionless ledgers. A margin system built on a record that can still reverse is a harder sell to a risk committee than one built on a record that cannot.
What I expect
The Bank stresses that its draft supervisory statement creates no separate regime. The principle it applies is “same risk, same regulatory outcome.” Tokenised versions of collateral CCPs already take, with tokenised government bonds as the paper’s lead example, will be judged like the originals. A CCP that applies still has to notify the Bank and, in some cases, seek its permission, because a tokenised version can carry a different delivery mechanism or liquidity profile.
My judgment is that the first approvals will go to arrangements where one authoritative ownership record is easy to name and the legal route to finality is documented, such as a tokenised bond whose depository record controls. Arrangements that spread recording, custody and settlement across issuers, tokenisers, technology providers and custodians, a spread the paper itself describes, will take longer, because the applicant must show who answers for each link in a default. Earlier FinTech Edition reports on tokenised securities settlement going live in the UK and on bank roles for the UK’s digital gilt give the UK background.
What to do before 12 February
The consultation closes on 12 February 2027, and the Bank asks for responses from CCPs, their participants, infrastructure providers and technology firms. A useful response names the authoritative ownership record in a specific arrangement, states when a transfer becomes final, and says who corrects a mismatch between ledger and depository. The Bank has asked, in Question 3, whether its draft statement leaves any areas where more guidance would help. Firms that answer with a worked arrangement will have more influence on what the final statement requires than those that send a general endorsement.
Source: Bank of England
