The U.S. Federal Reserve and other regulators have told bankers that they must maintain the same amount of capital to back tokenized securities as they do for regulators’ securities.
“The technologies used to issue and trade a security generally do not impact its capital treatment,” according to the agencies, which also include the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The three sent new FAQs to the banks they regulate on Thursday.
The legal rights of security owners are supposed to be the same regardless of how the securities are traded, and regulators say capital should also be the same. The assets themselves can also be used as financial collateral in the same way that the securities are, the agencies said, “subject to the same haircuts applicable to the non-symbolic form of the security”.
Banks and other financial firms are required by their regulators to maintain capital to guard against financial distress, setting aside certain levels of liquid assets so they can protect themselves and their customers. Setting the same standard for both forms of security ownership means that cryptocurrency-related assets will not be subject to stricter treatment.
The same treatment of capital also applies whether tokens are issued on permissioned or permissionless blockchains, regulators said, and this technology-neutral approach also applies to capital tied to derivatives that reference tokenized securities.
Securities tokenization is a growing segment of crypto activity, in which assets such as stocks, bonds, and real estate can be represented in a token issued on a blockchain. The United States Securities and Exchange Commission is also working on policies to determine how tokens are treated.
Capital requirements represent a critical compliance requirement in the banking industry, and clarity on these aspects of crypto capital further advances assets toward merging with the U.S. banking industry. Although U.S. banking watchdogs have been hesitant in recent years to embrace crypto and blockchain technology, new leaders appointed last year under President Donald Trump’s administration have made it a point to champion pro-crypto movements.
Read more: Market infrastructure companies warn tokenized securities face higher costs and split liquidity without interoperability
