The UK has unveiled an industry-led programme intended to move tokenised financial markets beyond experimental projects and into large-scale commercial use, as policymakers seek to protect London’s position as one of the world’s leading financial centres.

Chris Woolard, HM Treasury’s Wholesale Digital Markets Champion, has submitted his first report to the Chancellor setting out a 12-month programme for banks, asset managers, exchanges, technology companies and regulators.

The plan includes developing live secondary markets for digital securities, making tokenised assets easier to use as collateral, expanding tokenised investment funds and building payment systems capable of settling transactions across both traditional and distributed-ledger infrastructure.

It also calls for an initial pilot issue of the UK’s Digital Gilt Instrument, known as DIGIT, no later than the first quarter of 2027. The government hopes the programme will encourage financial institutions to progress from limited trials to functioning markets handling real assets and transactions.

Supporters believe the technology could reduce costs, accelerate settlement and release capital currently tied up within financial processes. However, the potential benefits depend upon the industry solving significant questions involving regulation, financial crime, interoperability, taxation, cybersecurity and financial stability.

What is financial-market tokenisation?

Tokenisation involves creating a digital representation of an asset and recording its ownership on a distributed ledger or similar programmable platform.

The underlying asset might be a government bond, company share, investment-fund unit, bank deposit or another financial instrument. The digital token represents the legal or economic rights attached to that asset.

This does not necessarily mean replacing a regulated security with an unregulated cryptocurrency. A tokenised bond remains a bond, while a tokenised investment fund remains subject to the legal and regulatory framework applying to that investment.

The principal difference is the infrastructure through which ownership is recorded, transferred and settled.

Traditional wholesale transactions can involve separate systems for trading, clearing, settlement, custody, payments, identity checks and regulatory reporting. Information is often duplicated across several organisations, with reconciliation required when records do not immediately agree.

Tokenisation could allow parts of that process to occur on a shared digital ledger. Programmable instructions, sometimes described as smart contracts, could automatically complete agreed actions once specified conditions have been satisfied.

The Financial Conduct Authority and Bank of England regard tokenisation as potentially one of the most consequential changes to wholesale markets for decades, but have stressed that adoption must preserve market integrity and financial stability.

The programme brings together 54 financial and technology businesses

The Wholesale Digital Markets Champion’s taskforce currently contains 54 organisations drawn from traditional financial services, market infrastructure and digital assets.

Participants include Barclays, HSBC, Lloyds Banking Group, Standard Chartered, BlackRock, Legal & General Asset Management, Aviva Investors, Fidelity International, Schroders, Goldman Sachs and Morgan Stanley.

The programme also involves the London Stock Exchange Group, Bloomberg, Euroclear, Clearstream, the Depository Trust and Clearing Corporation, Coinbase, Kraken, Ripple, Circle and several specialist financial-technology businesses.

The City of London Corporation will support the taskforce alongside TheCityUK, UK Finance, the Investment Association and Innovate Finance.

The breadth of participation is important because tokenisation cannot be delivered by one bank, exchange or technology provider acting alone.

Financial markets depend upon networks. A digital platform becomes more valuable when it contains more issuers, assets, investors, liquidity providers and settlement options. Conversely, a technically successful platform may remain commercially unimportant when few counterparties use it.

The challenge is therefore to create common arrangements that allow transactions to move between different institutions and systems without producing isolated digital markets.

Nine action groups will address the principal barriers

The report proposes nine action groups covering primary issuance and funds, secondary markets, collateral, payment and market infrastructure, taxation, law, financial-crime compliance, resilience and the promotion of Britain as a digital-finance centre.

Their work will be coordinated through an orchestration group responsible for testing a complete tokenised repurchase agreement, or repo transaction.

A repo allows one party to raise short-term finance by selling a security and agreeing to repurchase it later, normally at a slightly higher price. The security acts as collateral for what is economically a secured loan.

The UK is an important international centre for repo and wholesale funding markets. The report therefore views repo as a useful test of whether tokenisation can operate across the entire transaction, including the asset, collateral, payment, settlement and regulatory processes.

The taskforce will initially concentrate on repo, fixed-income securities and uncleared over-the-counter derivatives.

A successful test would demonstrate more than the ability to place a digital representation of a bond on a ledger. It would need to show that different parties could trade, settle, transfer collateral, complete compliance checks and manage failures within a legally enforceable and operationally resilient system.

Government aims to issue a digital gilt by early 2027

DIGIT is central to the government’s strategy.

The pilot will test the use of distributed-ledger technology throughout the lifecycle of UK sovereign-debt issuance. It is intended to be digitally native rather than a conventional gilt that is subsequently represented on a blockchain.

The government plans to issue DIGIT through a platform operating within the Bank of England and FCA’s Digital Securities Sandbox. The pilot will remain separate from the Debt Management Office’s normal borrowing programme, limiting the initial implications for routine government financing.

The project is expected to test on-chain settlement, over-the-counter trading, smart-contract functionality, greater transparency and the ability of digital infrastructure to connect with traditional financial systems.

The report recommends completing the first pilot issue by the first quarter of 2027 and then developing further issuances capable of supporting live secondary-market trading.

The Bank of England has described the planned instrument as the first tokenised sovereign issuance by a G7 country. It is also considering whether DIGIT should be eligible as collateral within its Sterling Monetary Framework.

Government involvement could provide the market with a high-quality digital asset around which trading, custody and settlement services can develop.

However, the commercial value will depend upon whether investors can readily buy and sell the instrument after issuance. A digital gilt without an active secondary market would demonstrate technical capability but may not produce a viable financial ecosystem.

Tokenised collateral could release capital

One of the strongest commercial arguments for tokenisation concerns the use of collateral.

Banks and other financial institutions hold large quantities of securities to support lending, derivatives and trading obligations. Moving eligible assets between accounts and organisations can involve delays, operating costs and periods during which collateral cannot be used efficiently.

A tokenised asset could potentially be transferred or pledged more quickly. Programmable systems might allow institutions to identify, allocate and substitute collateral automatically.

This could reduce the amount of additional liquidity that firms maintain as protection against settlement delays. Capital that is currently held within operational buffers might then become available for lending, investment or other productive uses.

The report recommends that the Bank of England be prepared to accept DIGIT within its monetary framework and consider the wider eligibility of tokenised collateral, including its use at central counterparties.

These benefits should not be treated as guaranteed. Faster movement does not necessarily mean that an asset has become safer or more liquid.

Collateral remains valuable only when its ownership is legally certain, its price is reliable and it can be sold during a stressed market. A rapidly transferable token representing a difficult-to-value asset may create the appearance of liquidity without providing genuine protection.

Transactions could settle more quickly

Most conventional securities transactions do not fully complete at the moment a trade is agreed.

The buyer’s payment and the seller’s delivery of the asset may occur later, following clearing, verification and settlement. During that interval, each participant remains exposed to the possibility that the other party will fail.

Tokenisation could allow the asset and payment to move simultaneously or almost immediately. A programmable transaction could ensure that ownership changes only when the corresponding money has been transferred.

This delivery-versus-payment arrangement could reduce settlement risk and the need for intermediaries to reconcile separate records.

The Bank of England is developing a synchronisation service intended to allow tokenised assets to settle against movements in central-bank money. Live delivery is targeted for 2028, while a separate programme is examining the extension of RTGS and CHAPS operating hours towards near-continuous settlement.

Central-bank settlement is considered important because commercial-bank deposits, stablecoins and other private forms of digital money can carry credit or redemption risk.

The Bank has said it has a low tolerance for a substantial movement away from settlement in central-bank money as tokenised wholesale activity expands.

The economic estimates are substantial, but uncertain

The report argues that the global market for tokenised real-world assets could reach $88 trillion by 2035, equivalent to approximately 16% of globally investable assets.

It estimates that successful adoption could add as much as £33 billion to annual UK economic output and generate £14 billion in annual tax revenue by 2035.

Those figures represent potential outcomes rather than government forecasts or guaranteed returns.

The £33 billion estimate is based upon industry-sponsored research and depends upon assumptions about the eventual size of the international market, the proportion captured by British firms and the productivity improvements produced by the technology.

Tokenised assets accounted for only about 0.01% of investable assets in 2025, despite rapid growth during the year. Moving from a small market dominated by pilots to tens of trillions of dollars of assets would require very substantial adoption by governments, banks, asset managers and investors.

The economic case is nevertheless credible in principle.

The UK processes more than £4 trillion of securities on an average day and holds important positions in foreign exchange, derivatives, repo, investment management and international banking. Even relatively small efficiency improvements across markets of that size could have a meaningful economic effect.

Benefits could extend beyond financial institutions

Wholesale markets may appear remote from the ordinary economy, but they help determine how businesses and governments raise money.

A company issuing shares or bonds depends upon market infrastructure to connect with investors. Banks use wholesale markets to obtain funding, manage risk and support lending. Pension funds and asset managers rely upon them to invest savings efficiently.

Lower issuance and settlement costs could therefore make it less expensive for businesses to raise capital.

More efficient collateral management might increase the capacity of financial institutions to lend, while better access to investment markets could attract international capital to British companies and infrastructure projects.

Tokenisation may also make it easier to divide certain assets into smaller ownership units. This could broaden access to traditionally illiquid investments, although any expansion into retail participation would require additional consumer protections.

For professional-services firms, the transition could create demand for legal advice, accounting, assurance, cybersecurity, compliance, data management and systems integration.

The benefits would therefore not be confined to banks or blockchain developers. However, they are likely to emerge gradually and may be concentrated within financial centres and technology clusters unless accompanied by wider investment and skills programmes.

Tokenisation could disrupt existing business models

The same efficiencies that reduce costs could weaken the position of some established intermediaries.

Financial institutions currently earn revenue by maintaining records, holding assets, completing reconciliations, providing settlement services and connecting separate parts of the market.

If a shared programmable system performs some of those functions automatically, the number of intermediaries required may decline.

The report acknowledges the possibility of disintermediation across banking, investment management, exchanges, payments, clearing and settlement. It also warns that increased transparency and lower barriers to entry could intensify price competition.

Incumbent institutions may respond by developing their own infrastructure, buying specialist technology firms or integrating conventional and tokenised services.

The largest companies could be well placed to make the necessary investment. Smaller firms may struggle with the cost of new systems, regulatory approvals and the need to operate both traditional and digital processes during a lengthy transition.

Tokenisation could therefore reduce some market barriers while creating others.

Fragmentation remains one of the greatest risks

The existence of several competing distributed ledgers presents a central challenge.

A token created on one platform may not automatically be transferable to another. Different systems may use incompatible technical standards, legal structures, identity arrangements or settlement assets.

Without interoperability, markets could fragment into separate pools of assets and liquidity. Investors might find that they can trade a security only within a particular network or through approved intermediaries.

Fragmented liquidity could weaken price discovery and make it more difficult to sell assets during periods of stress. It could also increase costs if firms must connect to several platforms.

The report warns that tokenised markets may initially develop as parallel “walled gardens”. Once one platform or standard has secured sufficient liquidity, network effects could make it difficult for competitors to challenge its position.

This could create excessive dependence upon a small number of technology or infrastructure providers.

The taskforce will therefore develop common data standards, application programming interfaces, messaging protocols and governance arrangements. Where common standards cannot be agreed, the report proposes interoperability layers capable of connecting different ledgers with each other and with existing systems.

Legal certainty is essential

Financial markets depend upon clarity over who owns an asset, when ownership has transferred and what happens when one of the parties fails.

Distributed ledgers may produce an apparently definitive digital record, but that record must correspond with enforceable legal rights.

Questions can arise over whether the token or an off-chain register constitutes the authoritative ownership record, which jurisdiction’s law applies to a cross-border transaction and whether an automated transfer can be reversed following fraud or error.

Smart contracts also need to interact with conventional legal agreements. Computer code may carry out an instruction automatically, but it cannot necessarily interpret every commercial dispute or unforeseen circumstance.

The report proposes developing best-practice frameworks for contracts governed by English law and identifying areas where additional certainty or guidance is required.

English law and the UK’s legal-services sector are viewed as competitive advantages. However, their value will depend upon providing predictable treatment without creating rules that become obsolete as the technology develops.

Financial crime controls must move with the asset

Tokenisation may improve traceability by creating a shared and time-stamped transaction history.

It could also make assets easier to move rapidly between platforms and jurisdictions, increasing the importance of effective identity, sanctions and anti-money-laundering controls.

The report identifies a potential delay between the movement of a token and the associated compliance information. An asset could be transferred while relevant customer-verification or sanctions data remains within another system.

The proposed financial-crime action group will develop interoperable arrangements for customer due diligence, anti-money-laundering controls, sanctions screening and digital identity.

The objective will be to allow legitimate transactions to proceed efficiently without creating gaps that criminals can exploit.

This requires more than placing existing compliance documents on a blockchain. Institutions must agree who is responsible for checking information, how frequently records are updated and whether participants can rely upon work completed by another regulated organisation.

Operational resilience will be tested

Traditional financial infrastructure is not immune to outages, cyberattacks or human error. Tokenised systems introduce a different combination of risks rather than eliminating operational risk.

A coding fault within a widely used smart contract could affect many transactions simultaneously. Private digital keys may be lost or stolen. A cyberattack upon a critical ledger, network connection or software provider could interrupt market activity.

Greater automation may also allow an error to spread more quickly than it would through a process containing manual controls.

The report calls for coordinated testing across networks and for existing resilience principles to be adapted to tokenised markets. Stress testing will form part of the taskforce’s end-to-end repo trial.

Regulators will need to consider how a market continues operating when one ledger or technology provider fails, how records are recovered and which organisation has authority to intervene.

A decentralised design does not automatically produce decentralised risk. Large numbers of firms may still depend upon the same software, cloud provider, identity service or settlement connection.

Digital money could increase the speed of financial stress

Tokenisation may allow businesses and investors to move funds between bank deposits, securities and other assets more rapidly.

During normal conditions, that mobility can improve competition and liquidity. During a crisis, it could accelerate deposit withdrawals or shifts into assets perceived as safer.

The report recognises that more mobile money could increase the risk of rapid deposit flight and produce a more pronounced bank run. It could also affect the amount of credit banks can provide if deposits move into tokenised products outside the traditional banking system.

Financial-stability authorities must therefore consider not only whether an individual tokenised product is safe, but how large-scale adoption changes behaviour across the system.

Settlement operating around the clock may reduce delays, but it also means that financial pressure can develop outside conventional market hours.

Risk-management, liquidity provision and regulatory monitoring may eventually need to operate on a similarly continuous basis.

International competition is driving the pace of reform

The UK is not developing tokenised markets in isolation.

The European Union, United States, Singapore, Hong Kong, Switzerland and the United Arab Emirates are pursuing digital-market initiatives with different combinations of regulation, public infrastructure and commercial experimentation.

The report argues that countries moving first may influence the technical and legal standards eventually adopted internationally. Liquidity and financial businesses could then cluster around the most widely used systems.

The EU has created a formal DLT Pilot Regime, although adoption has remained limited and critics have raised concerns about fragmented liquidity and restrictive operating limits. Hong Kong and Singapore have pursued controlled programmes involving tokenised bonds, deposits and settlement.

The UK’s advantage lies in the scale and international reach of its existing markets, together with its regulatory, legal and professional-services infrastructure.

Its disadvantage is that firms have sometimes regarded the British regulatory process as slower or less certain than the regimes offered by competing jurisdictions. The new programme is intended to address that perception by providing a clearer route from experimental sandboxes to full commercial operation.

The UK must move from pilots to functioning markets

Britain has already developed several relevant projects.

Sixteen firms have progressed through the first stage of the Digital Securities Sandbox and are working towards live issuance and settlement. The FCA has published a framework intended to move tokenised funds beyond experimentation, while the Bank of England is testing tokenised collateral and central-bank-money settlement.

The difficulty is converting separate initiatives into markets that are sufficiently connected and liquid to support routine use.

Financial institutions will not commit substantial investment without confidence that the rules and infrastructure will remain viable. Regulators, meanwhile, may be reluctant to finalise arrangements before they understand how firms intend to use the technology.

The taskforce is designed to break that cycle by bringing regulators, established institutions and newer technology businesses into a coordinated delivery programme.

Its success will ultimately be measured through live transactions rather than the publication of reports or the completion of technical demonstrations.

A significant opportunity, but not a guaranteed digital Big Bang

The City of London Corporation has described the programme as an opportunity to deliver a new digital Big Bang for British financial services. The comparison recalls the 1986 market reforms that transformed the structure and international importance of the City.

Tokenisation could eventually produce changes of comparable significance, particularly if securities, money and collateral can move through programmable infrastructure operating across international markets.

However, the transition is likely to be gradual.

Traditional and tokenised systems will probably operate alongside each other for many years. Firms may initially incur higher costs because they must maintain existing infrastructure while developing and connecting to new platforms.

The technology will produce economic value only when it improves the functioning of real markets. Creating a digital token is comparatively straightforward. Establishing liquidity, legal certainty, reliable settlement, effective governance and confidence during a crisis is considerably more difficult.

The UK begins with substantial advantages, including deep financial markets, internationally recognised law and a large concentration of banks, investors and professional advisers.

The new roadmap gives the industry a clearer direction and introduces specific delivery objectives, including the DIGIT pilot and an end-to-end tokenised repo transaction.

Whether the programme produces the predicted economic benefit will depend upon implementation. Britain must move quickly enough to compete internationally while maintaining the safeguards that underpin confidence in London’s financial markets.

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