The Financial Conduct Authority (FCA) and the Bank of England have said firms can adopt tokenisation and distributed ledger technology (DLT) with “greater confidence” thanks to new guidance.
The Bank has published a consultation on extending RTGS and CHAPS settlement hours, setting out next steps towards near 24/7 settlement.
The Prudential Regulation Authority (PRA) has also published ‘Dear CEO letters’ setting out updated guidance on the prudential treatment of tokenised asset exposures and on innovations in deposits, e-money and stablecoins.
The FCA said in a statement that the regulator and the central bank are in the process of setting out their ‘shared vision’ on the role of tokenisation in UK wholesale markets, and inviting industry input.
Tokenisation is the process of creating a digital representation of an asset such as a share, bond or unit of currency on a digital ledger, or blockchain, such as Ethereum. It has the potential to produce wide ranging-efficiency gains and cost savings.
The FCA noted that feedback from the industry indicates firms need more certainty on regulation and infrastructure as tokenisation grows.
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Simon Walls, executive director of markets at the FCA, said: “Tokenisation has the potential to transform wholesale markets, reshaping how assets are issued, traded and settled.
“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.
“Today we are setting out the principles of a shared long-term vision to give industry the clarity it needs to engage, invest and innovate with confidence. UK markets have always embraced new technology, and that will be central to ensuring the UK remains at the forefront of global wholesale markets.”
Sarah Breeden, deputy governor for financial stability at the Bank of England, added: “The Bank and FCA have done a huge amount to enable the responsible adoption of tokenisation in retail and wholesale finance in the UK, working with the government and the industry.
“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.”
