Tokenisation – adaption of regulation to support European markets

Digital assets have become the subject of a geo-political race as governments recognise their potential to drive growth and competitiveness. Major financial centres are moving quickly to shape the rules, build infrastructure and capture market share across stablecoins, central bank digital currencies (CBDCs), unbacked crypto and tokenised assets but on several key metrics, Europe can be seen as losing ground. Almost all systemically important stablecoins are US dollar-denominated and at the same time, Asian financial centres are converting policy ambition into execution: Singapore’s Project Guardian has moved from experimentation to commercialisation, while Hong Kong (SAR), China has advanced from sandbox testing to real-value transactions.

Within traditional financial markets, tokenisation - the process of representing and transferring tangible and intangible objects, rights and claims digitally using distributed ledger technology (DLT) - has become the central focus. Policymakers and regulators across the globe are clarifying existing frameworks and seeking feedback on what more is needed to advance tokenisation. Against this backdrop, European regulators have launched, accelerated and begun to apply the findings from tokenisation initiatives aimed at increasing the competitiveness of their markets.

In this article KPMG in the UK examine the evolving tokenisation agenda across Europe - focusing on the UK, the EU and Switzerland - considering the progress made to date, the further steps required, and what these developments may mean for Europe’s position as a global financial hub.

In 2025, the UK Property (Digital Assets etc.) Act gave the necessary legal clarity by confirming that digital assets can be recognised as personal property. This certainty provided a solid legal foundation for firms and regulators alike to begin to build meaningful momentum in tokenising markets.

UK regulators have launched several tokenisation initiatives. The Digital Securities Sandbox (DSS), launched by the BoE and the FCA in 2024, provides a live regulatory environment in which UK firms can test the use of DLT in the issuance, trading and settlement of financial securities under a modified legal and regulatory framework. Two years in, the emphasis is slowly moving from initial testing towards live activity and scaling determined through the DSS gate model whereby the regulator assesses participating firms’ level of preparedness to undertake live activity. The findings from the sandbox are intended to inform the development of the longer-term UK framework by the end of 2028.

In addition to the DSS, the BoE launched the DLT Innovation Challenge 2025 in collaboration with the BIS Innovation Hub London Centre. Within the challenge, financial services and technology firms, together with academic experts, explored the application of DLT in wholesale payments and settlement across four themes: settlement finality, scalability, network and asset control, and interoperability with DLT and non-DLT systems. The findings, published in May 2026, show that using DLT for wholesale settlement involves clear design trade-offs: gains in speed or scalability can introduce new dependencies or resilience concerns, greater decentralisation can complicate governance and control, and interoperability solutions often shift rather than eliminate underlying trust assumptions. These insights are expected to inform further analysis, experimentation and policy development, helping to clarify DLT’s potential benefits, current limitations and the areas requiring further consideration as financial market innovation advances.

In May 2026, the FCA and BoE launched a call for input on their joint vision for tokenisation in UK wholesale financial markets. The discussion is intended to support the safe and effective adoption of tokenised securities and to capture the potential benefits for efficiency, resilience and transparency across the financial system. It sets out the regulators’ core principles for the issuance and settlement of tokenised securities. These are broadly consistent with the existing framework for non-tokenised assets, including operational resilience, market cleanliness, and requirements such as Know Your Client (KYC) and anti-money laundering (AML), while also addressing tokenisation-specific issues such as liquidity fragmentation, the risks of non-natively issued tokens and neutrality across different forms of DLT.

Alongside these principles, the call for input also sketches out the regulators’ forward-looking plan. They intend to use the process to inform a final roadmap by the end of 2026, including timelines for specific rule changes, most of which they expect to consult on in 2027. Although the document remains high-level, it provides welcome clarity as to the regulators’ direction of travel:

• The regulators’ ambition is for digital asset ledgers to be able to access programmable settlement in central bank money and a synchronisation service to be delivered by 2028.
  
  
• Alongside the BoE, the FCA will work to set out the future settlement regime including which activities and instruments should be required to settle in Central Securities Depositories, set the conditions for the equivalent treatment of tokenised and non-tokenised assets including the treatment of tokenised collateral for central counterparties and in BoE operations.
  
  
• Prudential treatment of tokenised assets is to be outlined in final PRA rules once the Basel targeted review is finalised in 2028. More detail on this was outlined in the PRA’s letter to CEOs, also issued in May, which confirmed that, for now, tokenised assets will generally receive the same prudential treatment as their non-tokenised equivalents where the legal rights conferred are identical and the underlying risks are comparable. Firms should therefore focus on the risk characteristics of tokenised traditional asset arrangements rather than the specific technology or type of ledger on which they are recorded.

In May, the PRA updated its position on innovations in the use of deposits, e-money and stablecoins, following up on the position it set out in 2023. In its letter, the regulator reaffirmed its key expectations, most notably the need for clear branding distinctions between e-money and stablecoin products and tokenised deposits in a retail context, and the issuance of e-money and stablecoins from separate, insolvency-remote entities, to mitigate contagion risk. In other words, tokenised deposits are to be treated like traditional deposits, whereas e-money and stablecoins remain distinct and are viewed as higher-risk innovations. The letter also encouraged firms to keep supervisors informed of any material developments in their plans for innovations involving digital money or money-like instruments.

The FCA’s stance on tokenisation of funds is significantly more progressed as compared to tokenised securities. After consulting on progressing tokenised funds in 2025, the regulator published final guidance in May 2026. Read our in-depth analysis here.

In the EU, the regulatory treatment of digital assets is more mature as compared to the UK, thanks to the EU Markets in Crypto-Assets Regulation (MiCA) which became fully applicable at the end of 2024. However, MiCA’s scope and function is purely as a crypto framework and following its implementation, it became clear that the regulation needed to be expanded to consider how digital assets intersect with mainstream capital markets and institutional finance. In May 2025, the European Commission (EC) launched a consultation to review whether MiCA remains fit for purpose. A section of the consultation focuses on the legal treatment of tokens, including ownership rights, custody, collateral arrangements, insolvency treatment and enforceability across EU Member States. One of the key questions concerning legal certainty is whether holding/controlling a token on a blockchain constitutes ownership, and whether holding/controlling a non‑native token constitutes ownership or merely a claim on the underlying asset that it represents.

At present, regulations applicable to traditional securities, namely Markets in Financial Instruments Directive (MiFID) and Central Securities Depositories Regulation (CSDR), also apply to tokenised securities in the EU. However, in its consultation, the EC asks if crypto-assets that qualify as financial instruments as defined in MiFID, should continue to be governed by sectorial legislation or whether all assets recorded and transacted on distributed ledgers, that meet the definition of a crypto‑asset, or the services provided on such assets, should in principle be covered by MiCA.

The consultation also tackles other classes of tokenised assets, offering a path towards clarity beyond the general application of existing regulations for non-tokenised equivalents which it recognises as opaque and difficult to apply to certain assets types such “tokenised fund interests”, tokenised money-market instruments and other hybrid structures.

The EC sees stablecoins and tokenised deposits as potential infrastructure for tokenised financial markets, including settlement of tokenised securities, delivery-versus-payment (DvP), collateral management and programmable transactions. MiCA currently prohibits the granting of interest or any interest‑equivalent remuneration of stablecoins by either the issuer, offeror or crypto asset service provider (CASP), but the consultation asks if this should be modified.

In addition to MiCA, the EU launched the DLT Pilot Regime (DLTR) in 2022. Like the UK’s DSS, the regime provides a controlled environment in which market operators can bypass regulations such as MiFID II and CSDR to test DLT multilateral trading facilities, settlement systems and combined trading/settlement systems. However, uptake of the DLTR has been low and the EU’s Market Integration and Supervision Package (MISP) includes reforms to address this. In particular, the package aims to broaden the scope of eligible instruments, increase the scale limits that currently constrain activity, and introduce a more proportionate framework for smaller DLT infrastructures. Overall, these changes are intended to make the regime more commercially viable and better suited to supporting tokenised markets beyond a narrow testing phase.

In addition to the clarity the consultation aims to provide, the ECB has accepted assets issued using DLT as acceptable collateral since April 2026. Taken as a whole, these updates indicate that the EU is recognising the relevance of tokenisation and the importance of greater regulatory clarity to encourage market participation and represent progress towards tokenising EU markets.

Digital assets regulation is more mature in Switzerland than in both the EU and the UK. The DLT Act came into force in August 2021. In contrast with the EU, FINMA’s approach to initial digital assets regulation considered tokenised assets from the outset with the DLT Act explicitly outlining treatment of tokenised securities, introducing a dedicated licence for DLT trading facilities and providing the necessary clarity from the outset to encourage tokenisation of assets. As a result of this clarity, in March 2025 FINMA approved the first regulated DLT trading facility, permitting trading and settlement of tokenised securities on a blockchain platform with full regulatory oversight. The move demonstrated Switzerland’s advanced legal framework for tokenised markets and solidified its status as a pioneer in enabling fully regulated digital asset exchanges.

In addition, Switzerland’s supportive regime has enabled real-world tokenisation with the SIX Digital Exchange (SDX), a fully regulated digital asset exchange and central securities depository, issuing a cumulative total digital issuance exceeding CHF 1 billion by May 2024, including a landmark CHF 200 million digital bond by the World Bank.

No amendments to the DLT Act itself have been passed since 2021, reflecting that the original framework has held up well in practice. However, in October 2025 the government launched a consultation on amending the Financial Institutions Act. It is proposing two new licence categories: “payment instrument institutions” (to supervise stablecoin issuers under robust prudential rules) and “crypto-institutions” (to regulate crypto broker/custody services under proportionate requirements). These legislative proposals, currently under review, are designed to update Swiss law without altering the core DLT Act, building on its success while addressing new risks.

Major markets across Europe are at different levels of progress on tokenisation. While EU was ahead in developing a framework for cryptocurrencies it focused less on tokenised assets and is working to catch up by beginning to define the regulatory details required to enable tokenisation. The UK’s proposed tokenisation framework appears reasonable and clear, but the pace of design and implementation remains a concern, with a full final framework not expected until 2028. By contrast, Switzerland is further advanced in translating policy into implementation, having considered tokenisation from the inception of developing its regulatory framework. This thoughtfulness has paid dividends and indicates that if the EU and UK can strike the balance in a similar way, tokenisation will likely be enabled across Europe, driving the growth and competitiveness which governments are banking on.

In complement to the work done at national-level by regulators, international collaborations underline a central tension in tokenisation policy: competition between jurisdictions must be balanced against the need for cross-border interoperability. Collaborative initiatives such as the FCA’s work with IOSCO and the EBA’s MoU with the New York State Department of Financial Services as well as BIS’s Project Agora suggest that, in practice, tokenised markets are likely to develop most effectively through coordinated rather than purely competitive approaches. In the medium term, the priority will likely be greater coordination across jurisdictions, sectors and infrastructures, together with the legal and regulatory foundations needed to support tokenised markets at scale.

For firms, as regulatory guardrails begin to take shape, the opportunity to innovate should be matched by investment in the necessary technology and a readiness to strengthen internal risk and compliance frameworks for tokenised assets.