Federal Banking Agencies Clarify Capital Rules for Tokenized Securities, Signaling Tech-Neutral Approach

“A security is often referred to as ‘tokenized’ when ownership rights in the security are represented using distributed ledger technology,” the agencies said in the joint guidance. The FAQ clarifies that an eligible tokenized security should generally be treated in the same manner as the non-tokenized version under the capital rule.

That means banks holding tokenized securities must still follow the same playbook used for traditional financial instruments. Regulators emphasized that institutions must apply sound risk-management practices and comply with existing banking laws and regulatory requirements.

The agencies also addressed whether tokenized securities could qualify as financial collateral under bank capital rules. Their answer: potentially yes, provided the asset meets the same criteria applied to traditional securities.

To qualify as financial collateral, banks must maintain a perfected first-priority security interest or its legal equivalent. If those conditions are satisfied, an eligible tokenized security can be recognized as financial collateral and may serve as a credit risk mitigant, subject to the same regulatory haircuts used for conventional securities.

The clarification arrives as financial institutions increasingly explore tokenization of assets ranging from government bonds to equities and funds. By affirming that tokenized securities can be treated the same as traditional instruments under capital rules, regulators removed a layer of uncertainty that had hovered over bank adoption of distributed ledger systems.

The agencies’ guidance applies specifically to securities that grant legal rights identical to those associated with their traditional forms. Tokenized assets that do not confer equivalent ownership or legal claims fall outside the scope of the clarification.