UK Regulators Face Pushback on Tokenization Settlement Finality

The Bank of England and Financial Conduct Authority (FCA) received feedback on tokenization in wholesale markets, which highlighted the importance of collateral mobility. The ability to move and re-use collateral faster was seen as a significant benefit, with 24/7 trading and atomic settlement rarely mentioned unless in relation to collateral.

However, the regulators' proposal to determine settlement finality contractually rather than through legislation was met with resistance from respondents. They argued that this approach would not provide adequate insolvency protection against third parties, making it difficult to re-pledge, lend, or use assets as margin.

The Bank of England has confirmed that stablecoins can be used as settlement assets in the Digital Securities Sandbox, subject to conditions and Treasury regulation changes. The Bank also stated that it will consider the eligibility of tokenized assets 'like stablecoins' as collateral in its Sterling Monetary Framework operations, including DIGIT.