US banking regulators have clarified how tokenized securities should be treated under existing capital rules, stating that blockchain-based versions of traditional financial instruments will generally receive the same regulatory treatment as their traditional counterparts.
Conclusion
- The Federal Reserve and other US banking regulators have said that tokenized securities should receive the same capital treatment as traditional securities if they have similar legal rights.
- Regulators have stressed that banking capital rules are technology neutral, meaning the use of blockchain will not change the regulatory classification of assets.
- The purpose of this guidance is to provide clarity as banks explore tokenization and distributed ledger technology in financial markets.
Regulators clarify capital rules for tokenized securities
In a set of frequently asked questions released by the Board of Governors of the Federal Reserve System, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, regulators said the capital framework that applies to banks is designed to remain “technology neutral.”
Tokenized securities are digital representations of traditional assets, such as stocks or bonds, whose ownership is recorded and transferred using distributed ledger technology rather than traditional financial infrastructure.
According to regulators, if a tokenized security provides legal rights similar to traditional securities, it should receive the same regulatory capital treatment as the non-tokenized form.
“Technologies used for the issuance and trading of securities generally do not affect the circulation of its capital,” the directive says.
The clarification also states that banks should not treat capital differently depending on whether tokenized securities are issued on a permissioned or permissionless blockchain, reinforcing the neutrality of the technology.
In addition, eligible securities that meet regulatory definitions may qualify as financial collateral, allowing banks to recognize them under existing capital rules if all other requirements are met.
The agencies said that the FAQs were issued in response to the growing interest of banks and financial institutions exploring blockchain-based financial infrastructure and tokenization.
Tokenization has emerged as one of the fastest-growing sectors of the digital asset industry, with proponents arguing that blockchain-based securities could enable faster settlements, intraday trading and improved market liquidity.
Although the guidance does not introduce new rules, it aims to provide clarity to banks regarding the activities of tokenized securities and confirm that existing prudential standards continue to manage these risks.
