Tokenisation in financial markets is moving rapidly from experimentation towards commercialisation, but significant hurdles still stand in the way of widespread adoption, according to regulators and policymakers speaking at the FIA Global Cleared Markets Conference this month.
Ian Chung, executive director of the Monetary Authority of Singapore’s Markets, Infrastructures and Intermediaries Department, said industry pilot programmes over the past three years have demonstrated both the promise and the challenges of tokenisation in capital markets.
“We started our journey in tokenisation in 2022 with Project Guardian, of which the UK is also an important international partner. That gave us a window into both the potential as well as the challenges,” Chung said. “Tokenisation has lifted off, but has not achieved escape velocity,” he added.
Project Guardian, an international initiative between policymakers and the finance industry led by MAS, has tested blockchain and tokenisation across asset classes, including funds, foreign exchange and fixed income. The pilots offered a detailed view of how the technology performs in real-world scenarios and highlighted benefits such as near-instant, around-the-clock settlement and reduced reliance on intermediaries.
But three key challenges remain, Chung said: a lack of common standards across platforms, insufficient pools of reliable settlement assets, and the absence of institutional-grade infrastructure.
“Wholesale transactions demand predictable performance, governance and regulatory compliance. We don't see this on public networks yet,” he said.
“These learning points have guided MAS’s next steps,” Chung added. “We have announced several new initiatives, including the Bloom – Borderless, Liquid, Open, Online, Multi-currency – initiative to support tokenised deposits and regulated stablecoins for settlement.
“We are also launching the Global Layer One initiative to drive interoperability, and we have published a guide on the tokenisation of capital market products to give industry more clarity around the legal definitions. More guidance will follow in the months and years ahead.”
Legal certainty
While regulators on the panel broadly acknowledged the efficiency gains promised by tokenisation, European officials emphasised that the technology does not change the fundamental requirements for financial assets used in critical market functions such as collateral.
“A security is a security is a security,” said Klaus Löber, chair of the CCP Supervisory Committee of the European Securities and Markets Authority. “Tokenisation does not change the nature of the asset.”
Löber said the primary use case under discussion – improving collateral mobility – must be weighed against core safeguards such as liquidity, price stability and legal certainty, particularly in times of market stress.
“For central counterparties, the key question is whether tokenised collateral performs predictably in a default scenario,” he said. “If it does not, the operational benefits become secondary.”
Martin Merlin, director, financial markets, DG FISMA at the European Commission, echoed this cautious stance and stressed that regulators would continue to assess tokenised instruments based on traditional criteria.
“The key question is really the quality of the assets, and not so much whether it sits on a blockchain or in a traditional system,” said Merlin. He added that highly liquid sovereign bonds are more likely candidates for regulatory acceptance than newer instruments such as stablecoins, which must be evaluated on the strength of their reserve backing, governance and redemption mechanisms.
Settlement finality – the point at which a transaction becomes irrevocable – stood out as a central concern across jurisdictions, particularly in scenarios involving insolvency or default.
Merlin said the EU is updating its legal framework to ensure that settlement finality rules apply in distributed ledger environments, with the aim of boosting participation in its DLT Pilot Regime.
“We need legal certainty here,” he said.
Carmel Deenmamode, manager, market conduct and post-trade policy at the UK Financial Conduct Authority, echoed that view.
“The key pillar is providing that legal certainty at the point at which a transaction can no longer be reversed,” Deenmamode said, noting the FCA’s ongoing work with the Bank of England to explore how distributed ledger systems can meet those requirements.
Löber added that while technical innovation has advanced quickly, legal frameworks – particularly in cross-border contexts – are still playing catch-up.
“We have focused a lot on operational aspects,” he said. “The legal soundness still remains crucial. I’m not sure we have all the answers yet.”
Extended trading
Beyond tokenisation, regulators are also grappling with the implications of extending trading hours toward a 24/7 model, a shift often linked to the global and digital nature of tokenised markets.
Carlo Comporti, commissioner at Italy’s Commissione Nazionale per le Società e la Borsa, said authorities are still assessing the business case and potential risks.
“We need to preserve market integrity, transparency and effective supervision,” Comporti said. “These are the three main conditions before going forward.”
He added that questions remain around which products and investor segments would benefit most, as well as the operational readiness of market infrastructure. Regulators must also consider different models – from extended weekday hours to full 24/7 trading – and their varying implications.
For now, both tokenisation and extended trading remain works in progress, with regulators signalling that innovation is accelerating but wider adoption will depend on resolving legal, operational and market structure challenges.
