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- The Bank of England proposed new supervisory expectations for clearinghouses accepting tokenized collateral.
- Clearinghouses must demonstrate the ability to value, transfer, and sell tokenized assets under market pressure.
- The consultation paper aims to clarify how existing standards apply to digital versions of eligible assets.
The Bank of England wants clearinghouses accepting tokenized collateral to show they can value, transfer and sell it when markets come under pressure.
An Oct. 29 consultation sets out how existing standards would apply to digital versions of eligible assets. Faster transfers are part of the appeal, but access to collateral during a crisis remains the central hurdle.
Clearinghouses Need Assets They Can Sell After a Default
Central counterparties (CCPs), also known as clearinghouses, stand between buyers and sellers in financial markets. They collect collateral to cover exposures and help absorb losses if a member defaults.
Margin requirements can rise during volatile trading, forcing firms to deliver more cash or securities at short notice. Collateral must remain readily available, with dependable valuations and a market in which it can be sold.
Tokenization could help firms move assets between institutions and across borders more quickly. The Bank sees potential for faster responses to margin calls and simpler collateral management.
The proposals clarify supervisory expectations within the existing framework. They would give firms more guidance on applications involving tokenized assets, while leaving clearinghouses free to decide whether to accept them.
Tokenized Assets Face Pricing, Ownership and Access Checks
Tokenized government bonds are a leading example because conventional government securities are already widely used as collateral. However, a token’s market may behave differently from the market for its underlying bond.
Clearinghouses would need to assess whether prices remain reliable and whether there are enough buyers during stress. Different trading hours also matter: a token may keep trading while the conventional bond market is closed.
Legal ownership and access would face scrutiny too. Firms should establish which record determines ownership, when transfers become irreversible and whether permission requirements could delay a sale after a default.
Technology dependencies are another concern. Clearinghouses should assess whether failures at a custodian, blockchain platform or connecting service could leave assets inaccessible and how access would be maintained or restored.
This expands the evaluation beyond just blockchain speed. A fast-moving token is of limited use as collateral if the clearinghouse cannot turn it into funds when needed.
Stablecoins Still Need a Separate Route to Eligibility
The consultation does not automatically make stablecoins eligible collateral. Acceptance would require a rule change or permission to waive or modify the relevant rule, alongside other applicable approvals.
The Bank is also seeking views on possible future use of regulated stablecoins, tokenized money market fund units and tokenized gold.
For stablecoins, the questions include reserve quality, holders’ rights and reliable redemption into cash. A clearinghouse would also need to consider whether the token could lose value relative to its backing assets.
Responses close on Feb. 12, 2027. The Bank is inviting input from clearinghouses, market participants, infrastructure providers and technology firms exploring tokenized collateral.
