The United States financial regulators, including the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, said that tokenized securities will be treated the same as normal securities.
On Thursday, the U.S regulators said that a security is often referred to as “tokenized” when ownership rights in the security are represented using distributed ledger technology.
The answers to the frequently asked questions clarify that an eligible tokenized security should generally receive the same capital treatment as the non-tokenized form of the security under the capital rule.
The agencies also clarified that the capital rule is technology-neutral, and the technologies used to issue and transact in a security do not generally impact its capital treatment.
The capital requirements for banking organizations set by the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation are designed to be technology-neutral.
This means that the method or technology used to issue or trade a security does not typically affect how it is treated under bank capital rules.
In most cases, the capital treatment depends on the nature and risk of the security itself rather than the platform or technology used to facilitate its issuance or transactions.
Accordingly, a tokenized security that meets eligibility criteria should receive the same capital treatment as its traditional, non-tokenized version under the capital rules.
Likewise, a derivative linked to an eligible tokenized security should be treated, for capital requirement purposes, the same way as a derivative referencing the security in its conventional, non-tokenized form.
The technology used to grant legal rights to a security does not affect whether it qualifies as “financial collateral” under the capital rules. Banking organizations should assess a tokenized security based on the existing definition of financial collateral within the capital framework.
If a tokenized security meets this definition, it can be considered financial collateral and may be recognized by the bank as a tool to reduce credit risk, provided all other applicable requirements under the capital rule are satisfied.
In such cases, the tokenized version of the security would be subject to the same haircut adjustments that apply to its traditional, non-tokenized counterpart.
