The regulatory race to scale cross-border tokenised collateral
13 October 2026
As tokenised collateral moves beyond pilot programmes and into institutional markets, attention is shifting from technology to regulation. While digital assets promise greater collateral mobility and operational efficiency, divergent regulatory approaches risk creating new barriers to global liquidity. Theodore Law speaks with industry experts to investigate the regulatory risks and operational hurdles ahead
Image: stock.adobe.com/Raffaza
The debate around digital collateral is no longer centred on whether tokenisation works. Instead, market participants are increasingly focused on whether regulatory and legal frameworks can support cross-border collateral mobility at scale.
As tokenised government bonds, Treasuries, and money market funds (MMFs) move closer to real-world adoption, firms across securities finance, repo, and collateral management are exploring how digital assets could improve liquidity, reduce settlement friction, and enable collateral to move more efficiently between counterparties.
For funding desks, the potential benefits are significant. Assets that currently take hours, or even days, to transfer between institutions could potentially be mobilised atomically, improving balance sheet efficiency and reducing operational constraints.
Yvonne Deane Harte, director at UK Finance, says the conversation around tokenisation is “moving beyond questions of technical feasibility towards questions of scale, liquidity, and market structure.”
According to UK Finance's report, ‘Building Digital Markets of the Future’, industry support for wholesale digital markets remains particularly strong in areas such as collateral management, securities financing transactions, repo, and liquidity management.
“Firms also see a strong business case for tokenised collateral and margin management, but further progress on the supporting rules and infrastructure will be needed to support wider adoption,” she says.
Sam Edwards, head of Alpha Collateral at State Street, agrees that the benefits extend beyond simply converting traditional assets into digital representations.
“Tokenisation should not simply digitise existing collateral movements; it should create a more connected and programmable ecosystem in which assets move faster, collateral is mobilised more efficiently, and operational friction is materially reduced,” he notes.
A fragmented regulatory landscape
While capital markets remain structurally globalised, national regulatory bodies are executing digital asset frameworks asynchronously, creating localised policy environments that complicate cross-border execution.
The European Union’s DLT Pilot Regime has been operational since 2023, while the UK’s Digital Securities Sandbox (DSS) has progressed beyond its initial launch phase to process subsequent mature cohorts of institutional applicants.
Elsewhere, jurisdictions including Switzerland and Singapore have already codified mature legal frameworks supporting live, production-level digital asset issuance and financing. In contrast, the United States continues to calibrate its federal policy framework regarding digital asset custody, market structure, and bank-led stablecoin issuance.
For institutions operating across multiple jurisdictions, this creates a complex environment in which digital assets may be subject to different legal treatments, settlement models, and eligibility requirements.
Edwards argues that measuring success through the number of tokenisation pilots misses the more important question of whether assets can actually be deployed at scale. “The winners will be the jurisdictions that successfully combine legal certainty, regulatory clarity, and market infrastructure interoperability,” he says.
The challenge is particularly significant for collateral management. If tokenised assets cannot move efficiently across borders, firms risk creating digital equivalents of the very silos that tokenisation was intended to eliminate.
However, not everyone believes complete regulatory harmonisation is necessary. Yuval Rooz, CEO and co-founder of Digital Asset, argues: “Financial markets have always operated across different legal, regulatory, and market structures. The opportunity is to build infrastructure that can accommodate those differences rather than requiring every jurisdiction to harmonise before markets can connect.”
According to Rooz, the objective should be interoperability rather than uniformity, allowing assets and liquidity to move across borders while individual jurisdictions maintain control over local rules and supervision.
This focus on safe coexistence over absolute uniformity is mirrored by regulators. Jamie Bell, head of capital markets, supervision, policy, and competition at the Financial Conduct Authority, agrees that “the goal isn’t necessarily one single liquidity pool”.
“Different currencies, settlement processes, and market infrastructure can fragment markets as much as regulatory approach. We’re aiming for an ecosystem where different systems can work together safely and efficiently.”
To achieve this, international regulatory coordination remains vital. “Interoperability is key to tokenised collateral markets working at scale, and regulators coordinating with each other matters, especially as countries move at different speeds,” Bell adds.
Legal certainty remains essential
Technical interoperability alone cannot resolve foundational discrepancies in private property law. Institutional capital flight into digital assets remains restricted by ambiguities surrounding collateral perfection and asset ownership rights under insolvency frameworks.
Financial institutions need certainty regarding how tokenised assets are owned, transferred, pledged as collateral, and treated in the event of a default. Without clear legal frameworks, the benefits of atomic settlement and automated collateral management could be undermined by uncertainty during periods of market stress.
For participants in securities lending and repo markets, these questions have direct operational implications. Uncertainty around the legal treatment of tokenised collateral could affect collateral substitution, rehypothecation, default management, and the broader mobility of assets across jurisdictions.
Edwards notes that international efforts are already under way to address some of these challenges.
He points to initiatives such as the International Institute for the Unification of Private Law (UNIDROIT) Principles on Digital Assets and Private Law, which seek to create a common framework for issues including custody, secured transactions, applicable law, and insolvency treatment.
At the same time, cross-border initiatives are beginning to move beyond theory. “BIS Project Agorá has brought together major central banks and regulated institutions to test tokenised cross-border settlement, demonstrating that settlement finality can be achieved across participating legal systems,” Edwards explains.
Such projects are helping regulators and market participants assess how digital assets may function across multiple jurisdictions while maintaining legal certainty around ownership and settlement.
For institutions considering tokenised collateral, that certainty may ultimately prove just as important as technological innovation.
Can technology bridge the gap?
As regulatory divergence continues, many market participants are looking towards technology to bridge the gaps between different jurisdictions.
Networks designed for institutional digital assets are increasingly being developed with interoperability in mind, allowing participants to operate under different regulatory and operational frameworks while remaining connected to a broader market.
Rooz believes this approach reflects the realities of modern financial markets. “Canton was specifically built for today's realities, where financial markets remain governed by different rules.
“This allows institutions in different jurisdictions to connect and transact across the same network while each market maintains its own sovereign operating model, regulations, and requirements.”
Rather than requiring regulators to adopt identical frameworks, Rooz argues that infrastructure should enable firms to navigate local requirements while maintaining access to global pools of assets and liquidity.
Bell warns that speed does not inherently eliminate systemic friction, “it can just move it faster”.
“Operational, legal, and liquidity risks still need managing, and in a crisis, faster movement could mean faster contagion too. That's why we're clear: innovation has to come with strong risk management, whatever the technology,” he explains.
Harte emphasises that interoperability will be critical if tokenised markets are to achieve institutional-scale adoption.
“Our report highlights the broad industry consensus that legal, regulatory, and operational frameworks that work effectively across jurisdictions, infrastructures, and settlement assets are a vital factor in delivering efficient collateral mobility, deeper liquidity, and wider institutional adoption,” she says.
Edwards explains that technology can only address part of the challenge and notes that “digitising an asset does not remove the capital, liquidity, or collateral-treatment constraints that already apply to it”.
As a result, regulators must consider not only the infrastructure supporting digital assets, but also how existing regulatory frameworks interact with tokenised financial instruments.
From experimentation to implementation
First-generation digital market protocols suffered from highly restrictive operational boundaries, capping counterparty eligibility and aggregate transaction volumes to the detriment of institutional adoption rates.
Recent regulatory developments suggest policymakers are beginning to recognise those limitations.
The European Union has proposed reforms to expand the scope of its DLT Pilot Regime, including removing certain asset-specific restrictions and increasing aggregate volume thresholds. Meanwhile, the UK's DSS is seeking to provide firms with an environment in which tokenised assets and digital forms of money can be tested together.
Harte believes these developments are helping move the market towards practical implementation. “Initiatives such as the UK's Digital Securities Sandbox, alongside work on digital money, collateral frameworks, and the regulators' wider tokenisation agenda, are helping move the market from experimentation towards practical implementation,” she says.
For the UK, she argues, the opportunity “is to build on existing strengths in wholesale markets, post-trade services, collateral, and liquidity management, helping to create digital markets that are internationally connected, support efficient capital flows, and reinforce the UK’s position as a leading global financial centre”.
At the same time, Edwards notes that institutional investors are becoming increasingly comfortable incorporating tokenised assets into margin and collateral workflows.
The emergence of production activity from organisations such as the Depository Trust & Clearing Corporation (DTCC), alongside growing investment in digital custody and wallet infrastructure, suggests the market is gradually moving beyond pilot programmes.
“The conversation has shifted decisively from whether tokenisation matters to how quickly it can be integrated into day-to-day investment, treasury, and collateral processes,” he says.
The next phase
While significant challenges remain, the debate has clearly transitioned. The focus has shifted towards questions of interoperability, legal certainty, regulatory alignment, and market scale.
For Rooz, the long-term implications could be transformative, noting that “the biggest change will be that collateral stops being something institutions periodically move between disconnected systems and becomes continuously available, programmable capital”.
Firms could mobilise assets in real time, finance positions intraday, and access a broader range of funding opportunities using the same pool of collateral across multiple transactions.
Whether that vision ultimately materialises may depend less on technological capability and more on the industry's ability to create frameworks that support connectivity across markets.
The technology underpinning digital collateral is maturing rapidly and so the question now facing regulators, market infrastructures, custodians, and market participants is whether the legal and regulatory frameworks surrounding it can evolve quickly enough to support truly global collateral mobility.
As tokenised government bonds, Treasuries, and money market funds (MMFs) move closer to real-world adoption, firms across securities finance, repo, and collateral management are exploring how digital assets could improve liquidity, reduce settlement friction, and enable collateral to move more efficiently between counterparties.
For funding desks, the potential benefits are significant. Assets that currently take hours, or even days, to transfer between institutions could potentially be mobilised atomically, improving balance sheet efficiency and reducing operational constraints.
Yvonne Deane Harte, director at UK Finance, says the conversation around tokenisation is “moving beyond questions of technical feasibility towards questions of scale, liquidity, and market structure.”
According to UK Finance's report, ‘Building Digital Markets of the Future’, industry support for wholesale digital markets remains particularly strong in areas such as collateral management, securities financing transactions, repo, and liquidity management.
“Firms also see a strong business case for tokenised collateral and margin management, but further progress on the supporting rules and infrastructure will be needed to support wider adoption,” she says.
Sam Edwards, head of Alpha Collateral at State Street, agrees that the benefits extend beyond simply converting traditional assets into digital representations.
“Tokenisation should not simply digitise existing collateral movements; it should create a more connected and programmable ecosystem in which assets move faster, collateral is mobilised more efficiently, and operational friction is materially reduced,” he notes.
A fragmented regulatory landscape
While capital markets remain structurally globalised, national regulatory bodies are executing digital asset frameworks asynchronously, creating localised policy environments that complicate cross-border execution.
The European Union’s DLT Pilot Regime has been operational since 2023, while the UK’s Digital Securities Sandbox (DSS) has progressed beyond its initial launch phase to process subsequent mature cohorts of institutional applicants.
Elsewhere, jurisdictions including Switzerland and Singapore have already codified mature legal frameworks supporting live, production-level digital asset issuance and financing. In contrast, the United States continues to calibrate its federal policy framework regarding digital asset custody, market structure, and bank-led stablecoin issuance.
For institutions operating across multiple jurisdictions, this creates a complex environment in which digital assets may be subject to different legal treatments, settlement models, and eligibility requirements.
Edwards argues that measuring success through the number of tokenisation pilots misses the more important question of whether assets can actually be deployed at scale. “The winners will be the jurisdictions that successfully combine legal certainty, regulatory clarity, and market infrastructure interoperability,” he says.
The challenge is particularly significant for collateral management. If tokenised assets cannot move efficiently across borders, firms risk creating digital equivalents of the very silos that tokenisation was intended to eliminate.
However, not everyone believes complete regulatory harmonisation is necessary. Yuval Rooz, CEO and co-founder of Digital Asset, argues: “Financial markets have always operated across different legal, regulatory, and market structures. The opportunity is to build infrastructure that can accommodate those differences rather than requiring every jurisdiction to harmonise before markets can connect.”
According to Rooz, the objective should be interoperability rather than uniformity, allowing assets and liquidity to move across borders while individual jurisdictions maintain control over local rules and supervision.
This focus on safe coexistence over absolute uniformity is mirrored by regulators. Jamie Bell, head of capital markets, supervision, policy, and competition at the Financial Conduct Authority, agrees that “the goal isn’t necessarily one single liquidity pool”.
“Different currencies, settlement processes, and market infrastructure can fragment markets as much as regulatory approach. We’re aiming for an ecosystem where different systems can work together safely and efficiently.”
To achieve this, international regulatory coordination remains vital. “Interoperability is key to tokenised collateral markets working at scale, and regulators coordinating with each other matters, especially as countries move at different speeds,” Bell adds.
Legal certainty remains essential
Technical interoperability alone cannot resolve foundational discrepancies in private property law. Institutional capital flight into digital assets remains restricted by ambiguities surrounding collateral perfection and asset ownership rights under insolvency frameworks.
Financial institutions need certainty regarding how tokenised assets are owned, transferred, pledged as collateral, and treated in the event of a default. Without clear legal frameworks, the benefits of atomic settlement and automated collateral management could be undermined by uncertainty during periods of market stress.
For participants in securities lending and repo markets, these questions have direct operational implications. Uncertainty around the legal treatment of tokenised collateral could affect collateral substitution, rehypothecation, default management, and the broader mobility of assets across jurisdictions.
Edwards notes that international efforts are already under way to address some of these challenges.
He points to initiatives such as the International Institute for the Unification of Private Law (UNIDROIT) Principles on Digital Assets and Private Law, which seek to create a common framework for issues including custody, secured transactions, applicable law, and insolvency treatment.
At the same time, cross-border initiatives are beginning to move beyond theory. “BIS Project Agorá has brought together major central banks and regulated institutions to test tokenised cross-border settlement, demonstrating that settlement finality can be achieved across participating legal systems,” Edwards explains.
Such projects are helping regulators and market participants assess how digital assets may function across multiple jurisdictions while maintaining legal certainty around ownership and settlement.
For institutions considering tokenised collateral, that certainty may ultimately prove just as important as technological innovation.
Can technology bridge the gap?
As regulatory divergence continues, many market participants are looking towards technology to bridge the gaps between different jurisdictions.
Networks designed for institutional digital assets are increasingly being developed with interoperability in mind, allowing participants to operate under different regulatory and operational frameworks while remaining connected to a broader market.
Rooz believes this approach reflects the realities of modern financial markets. “Canton was specifically built for today's realities, where financial markets remain governed by different rules.
“This allows institutions in different jurisdictions to connect and transact across the same network while each market maintains its own sovereign operating model, regulations, and requirements.”
Rather than requiring regulators to adopt identical frameworks, Rooz argues that infrastructure should enable firms to navigate local requirements while maintaining access to global pools of assets and liquidity.
Bell warns that speed does not inherently eliminate systemic friction, “it can just move it faster”.
“Operational, legal, and liquidity risks still need managing, and in a crisis, faster movement could mean faster contagion too. That's why we're clear: innovation has to come with strong risk management, whatever the technology,” he explains.
Harte emphasises that interoperability will be critical if tokenised markets are to achieve institutional-scale adoption.
“Our report highlights the broad industry consensus that legal, regulatory, and operational frameworks that work effectively across jurisdictions, infrastructures, and settlement assets are a vital factor in delivering efficient collateral mobility, deeper liquidity, and wider institutional adoption,” she says.
Edwards explains that technology can only address part of the challenge and notes that “digitising an asset does not remove the capital, liquidity, or collateral-treatment constraints that already apply to it”.
As a result, regulators must consider not only the infrastructure supporting digital assets, but also how existing regulatory frameworks interact with tokenised financial instruments.
From experimentation to implementation
First-generation digital market protocols suffered from highly restrictive operational boundaries, capping counterparty eligibility and aggregate transaction volumes to the detriment of institutional adoption rates.
Recent regulatory developments suggest policymakers are beginning to recognise those limitations.
The European Union has proposed reforms to expand the scope of its DLT Pilot Regime, including removing certain asset-specific restrictions and increasing aggregate volume thresholds. Meanwhile, the UK's DSS is seeking to provide firms with an environment in which tokenised assets and digital forms of money can be tested together.
Harte believes these developments are helping move the market towards practical implementation. “Initiatives such as the UK's Digital Securities Sandbox, alongside work on digital money, collateral frameworks, and the regulators' wider tokenisation agenda, are helping move the market from experimentation towards practical implementation,” she says.
For the UK, she argues, the opportunity “is to build on existing strengths in wholesale markets, post-trade services, collateral, and liquidity management, helping to create digital markets that are internationally connected, support efficient capital flows, and reinforce the UK’s position as a leading global financial centre”.
At the same time, Edwards notes that institutional investors are becoming increasingly comfortable incorporating tokenised assets into margin and collateral workflows.
The emergence of production activity from organisations such as the Depository Trust & Clearing Corporation (DTCC), alongside growing investment in digital custody and wallet infrastructure, suggests the market is gradually moving beyond pilot programmes.
“The conversation has shifted decisively from whether tokenisation matters to how quickly it can be integrated into day-to-day investment, treasury, and collateral processes,” he says.
The next phase
While significant challenges remain, the debate has clearly transitioned. The focus has shifted towards questions of interoperability, legal certainty, regulatory alignment, and market scale.
For Rooz, the long-term implications could be transformative, noting that “the biggest change will be that collateral stops being something institutions periodically move between disconnected systems and becomes continuously available, programmable capital”.
Firms could mobilise assets in real time, finance positions intraday, and access a broader range of funding opportunities using the same pool of collateral across multiple transactions.
Whether that vision ultimately materialises may depend less on technological capability and more on the industry's ability to create frameworks that support connectivity across markets.
The technology underpinning digital collateral is maturing rapidly and so the question now facing regulators, market infrastructures, custodians, and market participants is whether the legal and regulatory frameworks surrounding it can evolve quickly enough to support truly global collateral mobility.
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