The Financial Markets Law Committee (FMLC) has called for a series of legal reforms to support the wider adoption of tokenisation in UK wholesale financial markets, responding to the Financial Conduct Authority (FCA) and Bank of England’s joint Call for input on the future of tokenisation.
In a letter to the regulators, the FMLC welcomed the UK authorities’ ambition to foster innovation in wholesale markets through tokenisation and distributed ledger technology (DLT), while emphasising the need for greater legal certainty to underpin market growth.
The Committee said ongoing collaboration between regulators and industry participants would be essential to ensure that the UK’s legal and regulatory framework remains supportive of innovation while maintaining confidence in financial markets.
However, the FMLC highlighted several legal issues that sit beyond the direct remit of the FCA and Bank of England but could hinder the broader adoption of tokenised assets if left unresolved.
A key concern raised by the Committee relates to governing law and private international law.
The FMLC noted that questions around which legal framework applies to tokenised assets and DLT-based transactions remain fundamental to the development of digital markets.
It pointed to its previous work on digital assets and welcomed the Law Commission’s ongoing review of digital assets and electronic trade documents in private international law.
The Committee also called for a review of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999, arguing that the existing framework was not designed with DLT-based settlement systems in mind.
According to the FMLC, certain concepts and definitions within the UK settlement finality regime do not readily accommodate DLT-based market infrastructures or tokenised financial instruments.
The Committee noted that the European Union has already introduced targeted amendments to its own settlement finality framework to account for DLT-based systems and suggested the UK should consider similar reforms.
In addition, the FMLC urged policymakers to review the Financial Collateral Arrangements (No. 2) Regulations 2003 to provide greater clarity on the treatment of digital assets used as financial collateral.
The Committee said stronger legal certainty around the use, taking and enforcement of digital assets as collateral would improve market confidence and support the development of tokenised financial market infrastructure.
It referenced recommendations previously made by the Law Commission and noted that the EU has already updated its financial collateral framework to better accommodate DLT-based assets.
Brian Gray, chief executive of the FMLC, said the Committee would welcome continued engagement with regulators as the UK’s tokenisation framework evolves and offered further assistance on the legal issues identified.
 has called for a series of legal reforms to support the wider adoption of tokenisation in UK wholesale financial markets, responding to the Financial Conduct Authority (FCA) and Bank of England’s joint Call for Input on the Future of Tokenisation.){kind=link}