The Bank of England has launched a consultation on draft guidance for central counterparties seeking to accept digital versions of eligible collateral in clearing. The proposal says existing rules can already accommodate tokenized collateral, provided the assets continue to meet the standards required for use in clearing.

The draft supervisory statement is intended to clarify what CCPs would need to address when applying through the current approval process. According to the central bank, the guidance would not introduce new regulatory obligations.

What the draft guidance covers

The consultation focuses on how a CCP can use tokenized forms of collateral that are already eligible, as well as collateral types that would qualify under the proposed UK CCP Rulebook but are not currently being used. In effect, the Bank is setting out how existing approval requirements would apply when those assets are represented in digital form.

Rather than creating a separate regime for tokenized collateral, the draft statement explains the issues CCPs should cover in applications under the framework already in place. The approach is framed as a clarification of current standards, not a change in the underlying rule set.

Conditions for acceptance

The Bank said tokenized collateral must remain capable of being valued, transferred and realized, including during stressed market conditions. That means the digital form of an asset would still need to support the core functions expected of collateral in clearing arrangements.

The consultation also points to a potential operational benefit from tokenization. Faster movement of collateral across jurisdictions could help firms meet margin calls, an area where speed and certainty can matter during periods of market pressure.

BoE links proposal to innovation agenda

Sarah Breeden, the Bank of England’s deputy governor for financial stability, said the consultation forms part of the institution’s work to advance its secondary objective for innovation in financial market infrastructure while preserving financial stability.

Breeden said the exercise sits within a broader agenda involving both public authorities and industry to support the responsible adoption of tokenization in financial markets. The Bank’s framing suggests it sees tokenized collateral as something that may be accommodated within existing safeguards, provided the practical and risk-management requirements are met.

Consultation timeline and next steps

The consultation period runs until Feb. 12, 2027. After that, the Bank of England said it expects to publish its policy response and final rules later this quarter.

For now, the immediate next step is feedback on the draft supervisory statement. That response will determine how the Bank finalizes its guidance for CCPs that want to use tokenized versions of eligible collateral under the current approval process.

Source: cointelegraph.com