- Regulators equalize capital rules for tokenized securities.
- Permissionless and permissioned blockchains are treated the same.
- Tokenized securities qualify as financial collateral.
US banking agencies have clarified that tokenized securities should be treated similarly to the capital treatment accorded to traditional securities, signaling a significant reversal in the regulatory outlook on on-chain financial assets.
Banking Agencies Align Tokenized Assets With Traditional Capital Framework
The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve jointly released a document highlighting how tokenized securities should carry the same capital requirements as non-tokenized assets in the banking environment.
Confirming the development, the OCC noted that the capital rule is “technology neutral,” implying that “the technologies used to issue and transact in a security do not generally impact its capital treatment.” The move further advances efforts to bridge the gap between blockchain infrastructure and legacy capital structures.
“Accordingly,” said the document, “an eligible tokenized security should be treated in the same manner as the non-tokenized form of the security would be treated under the capital rule.”
“Similarly, a derivative that references an eligible tokenized security should be treated for capital purposes as a derivative that references the non-tokenized form of the security.”
Meanwhile, in practice, transferring ownership rights of securities on-chain via tokenization will not automatically erase the regulatory assessment of the risks involved and capital requirements. Instead, they acknowledge that the economic substance of the asset class takes precedence over the technology.
The agencies maintain that banking organizations handling tokenized securities “must apply sound risk management practices” and align with other regulatory requirements.
Technology-Neutral Approach Extends to Tokenized Collateral
The banking regulatory shift marks a turning point for tokenized assets, considering that the regulatory attitude was critical and banks viewed permissionless blockchains as riskier. This previous stance led to greater scrutiny, which in turn, hampered innovation in the digital asset sector.
In addition to the clarification of its technology-neutral stance, the banking agencies also provided answers to whether a tokenized security qualifies as financial collateral “for purposes of the capital rule.”
“The technologies used to confer legal rights to a security do not impact its ability to meet the definition of ‘financial collateral’ in the capital rule,” said the regulators. “A banking organization should evaluate the tokenized security according to the definition of ‘financial collateral’ in the capital rule.”
Eligible tokenized securities that meet the statutory definition of financial collateral automatically qualify and may be acceptable in banks for credit purposes. They will also be subjected to similar discount rates as used for non-tokenized securities.
Furthermore, there will be no differences in capital treatment of tokenized securities based on whether they are issued on permissioned or permissionless blockchains.
The regulatory embrace of tokenized securities aligns with the ongoing emphasis of the Securities and Exchange Commission and the digital finance industry as the US aims to sustain undisputed global leadership in the sector.
