No ‘regulatory barriersʼ for tokenised deposits in the UK

Tokenised deposits — or “bank-issued stablecoins” — do not face any regulatory barriers in the UK, according to a leading industry expert. The new technology is expected to function as bank deposits without “disrupting current compliance” systems.

Speaking at the UK Finance Digital Innovation Summit on June 24, Peter Left, head of digital and markets innovation at Lloyds Banking Group, said: “There is absolutely no blocker to delivering, issuing or operating tokenised deposits.

“A change in technology does not alter the nature of your claim on Lloyds or any commercial bank. It does not affect your Financial Services Compensation Scheme (FSCS) deposit protection or your consumer rights,” he added. “It’s still a promise made by a licensed, regulated commercial bank.”

In a November 2023 letter, the Prudential Regulation Authority (PRA) said that “where a deposit-taker intends to innovate in the way that it takes deposits from retail customers (by taking ‘tokenised’ deposits)”, it expects this to be “done in a way that meets the PRA’s rules for eligibility for depositor protection under the FSCS”.

‘ChatGPT moment’ for banking

Most jurisdictions recognise tokenised deposits as cash equivalents, in terms of singleness and elasticity, according to Left.

Tokenised deposits are the “digital form” of bank deposits backed by traditional finance (TradFi) assets, such as mortgages and other loans. The technology essentially operates like stablecoins but offers “more stability and regulatory protections”.

Tokenised deposits also have the same anti-money laundering (AML) and know-your-customer (KYC) standards as normal bank deposits, while “rival” stablecoins only undergo KYC processes once they enter the traditional banking system.

“This feels like the ChatGPT moment for money. We’re at the beginning of something big, and it’s going to become highly automated,” said Gilbert Verdian, chief executive officer of digital infrastructure firm Quant. “Until now, we’ve had to work hard to make money work — but that’s about to change. Soon, money will start working hard for us.”

Tradition meets transformation

Tokenised deposits allow the “co-existence” of the old and new financial systems, unlike stablecoins and other crypto products. Several international banks are developing their own versions since this enables them to keep the current structure and overlay the established financial system.

Verdian explained: “It’s not about switching off the old system and moving everyone to the new one in an hour — that’s not going to happen. Instead, you reduce risk for everyone involved by slowly migrating volumes and transactions to the new platform, which offers better technology, capabilities and functionality.

“Meanwhile, you ring-fence the old system because you need resilience and stability. The last thing anyone wants is to break the core payment system of a country — that could cause bank runs and chaos.”

Deposit tokens?

However, Morten Bech, centre head of the innovation hub at the Bank for International Settlements (BIS), also noted that regulators still need to define the difference between “tokenised deposits” and “deposit tokens” for compliance purposes.

For example, the European Banking Authority (EBA) published a report on “deposit tokens” in December 2024, which highlighted regulators’ struggle to differentiate between tokenised deposits and e-money issued by credit institutions; both products involve a claim of the “depositor” or “token holder”.

While many jurisdictions have established rules on traditional deposits, the stablecoin and tokenised asset sectors remain loosely regulated — including the so-called ‘crypto capital of the worldʼ the US.

JPMD leading the way

Meanwhile, on June 17, JPMorgan Chase announced plans to launch JPMD, a type of “deposit token” — marking a shift away from its private blockchain project, JPM Coin, towards a public-chain system.

The bank filed a trademark application on June 15 for JPMD, which will offer clients round-the-clock settlement, as well as the ability to pay interest to institutional holders, using Coinbase’s public blockchain Base.

“Given the fact that deposit tokens would eventually be interest bearing as well, this would provide better fungibility with existing deposit products that institutions currently use,” said Naveen Mallela, global co-head of JPMorgan’s Kinexys Digital Payments, in an interview with CNBC.

He noted that while the token may share some similarities with a stablecoin, it is ultimately a different type of product.