By Lynn Strongin Dodds, Senior Writer, DerivSource
Tokenized collateral will remain high on the UK and European agenda this year with central banks in both regions looking at the different avenues where it can be deployed.
In the UK, the Bank of England (BoE) is considering expanding the range of assets that could be accepted as collateral in tokenized form under the UK’s European Market Infrastructure Regulation (EMIR) framework for derivatives markets.
The UK EMIR is the post-Brexit regime regulating derivatives, central counterparties (CCPs) and trade repositories. The legislation is still winding its way through the country’s regulatory pipeline with key updates including updated reporting requirements (Refit), new trade repository standards, and proposed exemptions for certain options.
Eligible collateral is also a hot topic and last year, the central bank canvassed views on the subject as part of its consultation on the resilience of central counterparties. The aim is to enable tokenized versions of assets already acceptable as regulatory collateral by CCPs to qualify under UK EMIR rules, provided risks are appropriately mitigated.
in a statement, Sasha Mills, executive director for financial market infrastructure, said, “Some thought is needed on traditional assets that are not already acceptable as regulatory collateral, but which the industry would like to see tokenised and then used as collateral.”
The view is that tokenization, which represents traditional financial assets as digital tokens on a shared, programmable ledger, could streamline collateral mobility by enabling near-instant movement of assets across firms and jurisdictions.
This would not only improve liquidity management of already eligible collateral but also reduce operational frictions in collateral movement.
Mills said, “We are already seeing practical applications of tokenisation being piloted in collateral markets, offering greater automation and faster settlement, with the potential to lower firm operating costs and increase system-wide liquidity.”
However, she also highlighted the key challenges including operational resilience and legal enforceability. She added that tokenised collateral would need to meet certain criteria to support financial stability, just as traditional collateral must meet these standards today. This includes ensuring both the underlying structure of the tokenised asset and its infrastructures are resilient.
The European Central Bank (ECB) has also moved forward in allowing banks to use tokenised assets as collateral in Eurosystem credit operations from March 2026. Under the revised framework, certain marketable assets issued in tokenised form will be treated in the same way as traditional securities, provided they meet existing eligibility and risk management standards.
This is only the first phase of a broader transformation. The Eurosystem has launched a work programme to examine how assets issued and settled entirely on DLT networks could, in time, become eligible collateral.
Officials are considering a staggered model in which subsets of DLT‑based assets are phased in as market adoption grows and as legal and regulatory frameworks evolve.
