US Regulators: Tokenized Securities Get Same Capital Rules
U.S. banking regulators said on Thursday that tokenized securities will be subject to the same bank capital requirements as their traditional equivalents, emphasizing that the framework is technology neutral. The joint clarification was issued by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
The agencies stated that the technology used to issue or transact a security generally does not affect its capital treatment. They added that an eligible tokenized security should be treated in the same way as the non-tokenized form of that security under the capital rule.
Under the guidance, banking organizations will not be required to over-collateralize positions solely because a security is tokenized, a practice that can apply to unproven or highly volatile assets.
The regulators said growing interest in tokenization among traditional financial institutions prompted the issuance of the clarification.
Source: Federal Reserve
The agencies also noted that derivatives referencing an eligible tokenized security should be treated, for capital purposes, the same as derivatives that reference the non-tokenized version of the security.
They further clarified that tokenized securities can qualify as financial collateral if they are liquid and legally owned or controlled by an institution that can sell them if a borrower defaults, consistent with the terms of a collateral agreement. An eligible tokenized security that meets the definition of financial collateral may be recognized as a credit risk mitigant if all other applicable capital rule requirements are met.
Traditional financial firms, including JPMorgan, BlackRock, and Franklin Templeton, have been expanding into asset tokenization through investments and infrastructure initiatives. A key feature cited by industry participants is the potential for around-the-clock trading on blockchain networks, compared with standard market hours in traditional markets.
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