UK regulators are pushing for a major overhaul of wholesale financial markets through tokenisation, proposing 24/7 settlement and new capital rules to enhance efficiency and competitiveness. The Bank of England and the Financial Conduct Authority have outlined plans to integrate digital assets into the core infrastructure of the UK's financial system, according to a joint consultation paper published on Thursday.
Key Proposals
The proposals include enabling round-the-clock settlement for wholesale transactions, which currently operate on a T+2 basis. This shift would reduce counterparty risk and free up capital for market participants. Additionally, regulators are considering new capital requirements for tokenised assets to ensure financial stability while fostering innovation.
Impact on Market Participants
Banks, asset managers, and fintech firms would benefit from faster settlement cycles and reduced operational costs. However, they may face higher capital charges for holding tokenised assets, depending on the final rules. The consultation seeks feedback on whether tokenised securities should be treated similarly to traditional instruments under Basel III standards.
Timeline and Next Steps
The consultation runs until March 2025, with final rules expected by late 2025. The Bank of England plans to launch a pilot for a wholesale central bank digital currency to support settlement. This push aligns with the UK's broader strategy to become a global hub for digital finance after Brexit.
Industry Reactions
Industry groups have welcomed the initiative but urged caution on capital rules. The Association for Financial Markets in Europe noted that overly stringent requirements could stifle innovation. Meanwhile, the Crypto Council for Innovation praised the focus on interoperability and standardisation.
Overall, the proposals mark a significant step toward modernising the UK's financial infrastructure, potentially setting a precedent for other jurisdictions.
