The US Federal Reserve and other regulators told bankers that they need to maintain the same amount of capital to back tokenized securities as regulatory securities.
“The technologies used to issue and transact a security generally do not affect its capital treatment,” according to the agencies, also including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The three sent a new FAQ document to the banks they regulated on Thursday.
The legal rights of security owners must 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 as securities, the agencies clarified, “subject to the same cuts applicable to the non-tokenized form of the security.”
Regulators require banks and other financial companies to hold capital as a hedge 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 securities ownership means that crypto-linked assets will not face stricter treatment.
The same capital treatment also applies whether the tokens are issued on permissioned blockchains or not, regulators said, and that technologically neutral approach also holds for capital tied to derivatives that reference tokenized securities.
Securities tokenization is a growing segment of crypto activity, where assets such as stocks, bonds and real estate can be represented in a token issued on a blockchain. The US Securities and Exchange Commission is also working on policies to direct how the tokens are handled.
Capital requirements represent a fundamental compliance demand in the banking business, and clarity on such aspects of crypto capital moves assets towards merging with US banking. Although U.S. banking regulators have been reluctant in recent years to embrace crypto and blockchain technology, incoming leaders appointed during President Donald Trump’s administration last year have made a point of championing pro-cryptocurrency moves.
Read more: Market infrastructure companies warn that tokenized securities face higher costs and split liquidity without interoperability
