Speech
Good afternoon. It is a pleasure to be with you today. Thank you to Hogan Lovells and Global Digital Finance for bringing together financial institutions, policymakers, regulators and technology innovators at a moment when the digital-assets debate is changing in an important way.
For several years, much of this debate has been about technical possibility. Can a security be issued on a distributed ledger? Can a smart contract automate an event in its lifecycle and embed AML/KYC checks? Can cash and assets move together across different systems? Increasingly, the answer is yes.
The harder question is whether those possibilities can become trusted, widely-used and commercially sustainable. We must ask not only whether the technology works, but who owns the asset; which record is authoritative; when settlement becomes final; what happens on insolvency; who is accountable; where the regulatory perimeter falls; and whether the service solves a problem that customers are willing to pay to solve.
Those are not peripheral questions. They mark the difference between an interesting experiment and working part of the financial system's infrastructure. Technology can create a token in an instant. Creating a trusted market around it is the more consequential task.
There is a useful parallel in the history of medicine. When Alexander Fleming observed the antibacterial effect of penicillin in 1928, the scientific insight was extraordinary. But the observation in a petri dish was not yet a medicine that could improve outcomes at scale. Other researchers had to turn that insight into a stable treatment. Manufacturers had to find ways to produce it reliably and in large quantities. Clinicians needed evidence and confidence to use it. A breakthrough became transformative only when a wider system developed around it.
I do not want to stretch the analogy too far. Financial markets are not medicine. But the lesson is helpful. Discovery matters. So do trial and error, evidence, standards, production, distribution and trust. Innovation succeeds when invention becomes everyday practice.
That is the journey I want to discuss today: how useful innovations in digital finance, led by industry with convening and coordination from the authorities where appropriate, can move from possibility to practical use, and from practical use to permanence.
Innovation founded on stability
For the Bank, financial stability is the foundation. But stability and innovation are not opposing objectives. Confidence in the system enables firms to invest, users to adopt and new approaches to achieve scale. Our secondary innovation objective recognises that innovation, pursued safely, can improve efficiency, strengthen resilience and support broader economic growth. We therefore support innovation in ways that preserve, and may ultimately reinforce, financial stability.
Our ambition is to create conditions in which new entrants and incumbents can explore responsible change, and in which successful initiatives can progress from experimentation towards scale. The secondary innovation objective has applied to the Bank’s regulation of central counterparties and central securities depositories. The Government has proposed extending that statutory focus to the Bank’s regulation of payment systems, including those using digital settlement assets, and related service providers. We welcome this proposal from Government, in particular that it will bring the objective to a further core part of our financial-market-infrastructure remit, reinforcing the approach we are already taking: working with government, other authorities and industry to maintain trust while enabling innovation.
We will not know in advance which technologies, products or business models will deliver the greatest benefits. Commercial users, not the authorities, should drive that selection. The Bank's role is to preserve strong foundations, remove unnecessary barriers, provide proportionate pathways for firms to learn and grow, and convene where a system-wide outcome cannot be achieved by firms acting alone. As authorities our role is to ensure that there is a platform for open competition and that what succeeds commercially can do so safely and responsibly. But we should not pick winners; that’s for the market. It is industry’s job to identify solutions, test them, and implement them.
From commercial value to trusted markets
Let me start with commercial value, because innovation will not be useful if it is not commercially viable. Tokenisation may enable faster processing, reduce reconciliation and operational costs, automate lifecycle events, mobilise collateral more efficiently, and make information available in more usable forms. But a technically successful pilot that cannot attract users, connect to liquidity or generate sustainable activity will not transform finance.
The prize is not merely that an individual firm makes one process quicker. It is that successful innovation becomes normal market practice. That requires continuity of confidence across the system. Cross-market adoption is hard and may cut across individual firms’ incentives. The benefits depend on other firms investing too, on compatible operational arrangements, on common legal understanding and on standards that allow systems to interoperate.
Structural change, such as tokenisation, also requires different parts of the financial system to move together. Issuers, investors, trading venues, infrastructures, banks, custodians and technology providers may all need to adapt. These sectors have different systems, incentives, and regulatory frameworks. And because financial markets operate across borders, new arrangements must be capable of connecting across platforms and jurisdictions. Otherwise, innovation intended to reduce friction could create new technological, legal or regulatory fragmentation.
Let’s go back to penicillin. Penicillin became transformative not because every institution pursued an isolated solution, but because research, testing, production and clinical practice developed together. In financial markets too, a good idea may work within one firm yet fail across firms if the connections are missing. The investable frontier within an institution can remain uninvestable across the market.
Strong foundations therefore matter. A tokenised security needs a legally authoritative record. Ownership must be evidenced and transferred. Competing claims must be resolvable. Settlement must be final and irrevocable. Insolvency protections must work. Responsibility for maintaining the record must be clear. Faster technology does not automatically produce clearer legal effect.
The same is true operationally. An asset cannot realise its full value unless the cash leg can settle with comparable certainty. Nor will a new platform scale if it cannot connect to existing infrastructure, liquidity and custody arrangements. Interoperability is therefore about more than a technical bridge: it requires compatible rulebooks, data, operating hours, legal arrangements and risk controls.
This is why the Bank - working closely with the Financial Conduct Authority, HM Treasury and industry - has focused on providing the foundations for tokenised markets to thrive in the UK. In May, we, with the FCA, published a Call for Input on Tokenisation which set out our commitment to enabling the benefits of tokenisation in the UK's wholesale financial markets. We pointed to work already underway and made commitments in several key areas where we can use our regulatory, operational, and policymaking levers to drive change. Later this year, we will publish a full Roadmap which will provide a clear forward path, to help ensure all parts of the financial system move together to grasp the gains of tokenisation. Industry must engage actively with that Roadmap, align investment and delivery plans around it, and work collectively to turn those foundations into scalable market activity.
The role of industry and the authorities: an end-to-end system
Industry collaboration and coordinated action is essential to identifying what stands in the way of responsible innovation, and which combination of solutions can remove those barriers. Some obstacles may require targeted legal, regulatory or operational changes. Others will demand market-wide coordination, common standards and shared approaches. Because tokenisation cuts across products, institutions and infrastructures, no single intervention will be enough. Progress will depend on complementary changes that reinforce one another.
That is also why the work of the Wholesale Digital Markets Champion matters. By bringing firms together around practical use cases, such as the repo market, the Champion can expose dependencies, align incentives and build momentum where coordinated investment is needed. This can help industry and the authorities distinguish between problems that require a coordinated action plan and those that market forces will solve by themselves. Public authorities should focus on genuine public-policy obstacles, rather than assume that every barrier to adoption has a regulatory answer.
The Digital Securities Sandbox: evidence before permanence
But coordination alone is not enough. Firms also need a way to test their ideas, capabilities and market appetite for their products and services. And they need to do this under real-world conditions and with real users.
That is one reason why the authorities created the Digital Securities Sandbox. I should explain, sandbox does not mean playing with a child's version of reality, it means allowing real trades with real customers in a way that won't break the financial system if something goes wrong. Along with the FCA we have changed the rules to allow new market structures and products to be created and tested. The DSS allows firms to issue, trade and settle digital securities, on new technologies and combine trading and settlement in the same legal entity. This was not previously permitted and enables firms to set up efficient new market structures that exploit new technologies. They can use distributed ledger (DLT) and other new technologies to record and transfer assets and offer completely new financial instruments that may unlock new sources of liquidity, offer new investors access to markets previous unavailable to them, and make post trade processes significantly more efficient.
While the DSS does use limits, these have been set at levels that allow for meaningful activity - for example, £8-13.1 billion for gilts, and £17-28 billion for sterling corporate bonds – while ensuring appropriate financial stability safeguards are in place.
The Bank has already adjusted the DSS in response to feedback and as the market has developed, including broadening the settlement assets that firms may use to include stablecoins, subject to minimum requirements and case-by-case assessment.
A deep understanding of the legal operational and practical barriers that need to be removed or overcome help us be more proportionate and, taken as a whole, these activities have the potential to drive significant innovation and growth. We are working with the Wholesale Digital Markets Champion and the industry to build this future for UK markets.
A well designed permanent regulatory regime that supports innovation and allows a whole new generation of firms, products, and market structures to flourish is an important prize. By serving as a starting point for a permanent regulatory regime, and enabling firms and authorities to see the real-world benefits and risks of these technologies before it’s put in place, the DSS provides a real benefit to the system as a whole – beyond simply the institutions participating in it. In this way, the DSS promotes greater certainty, competition and innovation compared to alternative ‘sandbox’ approaches.
I am encouraged by the number of firms in the DSS, the steady flow of firms passing the ‘Go Live Gate’ and breadth of business models being explored. The prospect that the Digital Gilt Instrument, or DIGIT, could further our collective learning. DIGIT, as a digitally native government bond issued in the DSS, provides a real instrument around which firms can develop and test the connections needed across issuance, ownership records, trading, settlement, custody and collateral use. It does not determine the design of every future security, but it could provide a practical catalyst for the ecosystem around digital securities and demonstrates the UK’s commitment to digitising its markets.
Integrated market structures, efficiency from on chain assets born out of experimentation and business growth through and after the DSS is the aim. Not all ideas or firms will be successful, but we are allowing them to try so market forces, not regulatory constraints, determine the future.
Progress is not linear in innovation. The value of all the work by firms and the authorities below the waterline will only become truly apparent when this new generation of businesses have scaled up in the DSS and the successful ones are operating seamlessly with the wider market as it transforms to greater digitisation.
The longer-term legal architecture
This is why the future of CSD regulation and settlement finality belongs firmly in the innovation agenda. On the infrastructure side, we need to consider whether the definition of a CSD remains fit for new business models, whether the scope of securities required to settle on a CSD is set appropriately, and how requirements should apply proportionately to firms that may look different from today's FMIs. On the legal side, settlement finality must continue to provide certainty for CSDs and the wider system, while the framework for financial collateral arrangements responds to the emergence of different asset types. Efficient technology is insufficient if ownership, transfer and finality remain uncertain.
The evidence generated in the DSS will be important as the authorities consider the future framework and possible steady-state paths for successful activity. The objective should be a framework capable of supporting established and new structures while retaining the confidence on which both depend.
Pathways: same risk, same regulatory outcome
Our guiding principle in forming regulation going forward continues to be ‘same risk, same regulatory outcome’. That does not mean rules and supervisory approaches must always apply in exactly the way they have before. They may need to be amended, interpreted or calibrated so that a different technology, product or entity achieves the same underlying outcome. Innovation does not receive a lower standard. The standard remains the same, even where the route to meeting it changes.
This approach recognises that not all experimentation will scale. A model may prove operationally sound but commercially unattractive. Another may be commercially attractive but unable to manage the risks it creates. Either conclusion is useful evidence. Penicillin is widely known because the discovery ultimately worked at scale. Responsible experimentation must also make room for ideas that do not. The point is to learn, not to predetermine success. That learning will support further innovation.
And learning must run both ways. Industry must be candid about business cases, dependencies and risks. Regulators must listen, test whether rules remain justified and adapt where evidence demonstrates that change is needed. A flexible framework is not one without standards. It is one that can calibrate its requirements to the risk, the evidence and the stage of development.
The relevant questions are therefore functional. What service is being provided? What risks does it create? Where do those risks travel? Could they become systemic? Which authority has the tools to address them? As activities and risks change, the perimeter must remain capable of recognising the substance of what is being done.
Trusted functions and a safe transition
Consider tokenised collateral. Tokenisation may make collateral faster or easier to identify, transfer and mobilise. That could reduce operational friction. But collateral exists to absorb risk, especially in stressed conditions. Its legal enforceability, settlement finality, liquidity, valuation, custody, operational resilience and accessibility in stress matter even more.
The same is true of central clearing. Tokenisation may change how services are delivered, but it does not remove the value of multilateral netting, disciplined default management and trusted risk management. Innovation should improve those functions, not ignore or impair them.
A safe transition therefore matters as much as the destination. New and established arrangements may coexist for a considerable period. Links between them must not create hidden dependencies, ambiguous ownership or new channels of contagion. Incumbents and new entrants both have an essential part to play.
Practical foundations
Digital assets also need to be paid for. The cash leg is not a secondary implementation detail. Asset and payment transfers must be coordinated so that neither party bears unnecessary principal risk. Central bank money remains the ultimate risk-free settlement asset and an anchor for the singleness of money, even in a future in which private forms of digital money also play important roles.
Synchronisation is not simply an experiment: the Bank intends to deliver a live synchronisation capability in 2028, enabling innovative platforms to settle transactions in central bank money. We are testing that capability now through the Synchronisation Lab, where prospective operators can develop use cases, test design choices and refine business models in a non-live environment ahead of launch. Building on Project Meridian, this work is helping us ensure that the live service provides a trusted settlement capability on which the market can build, without prescribing every platform or use case that connects to it.
This puts the UK in a good position to scale digital asset adoption, because it will be built on the foundation of programmable risk-free money.
The Bank's commitments
Let me draw these points together into five commitments from the Bank, with some corresponding challenges to industry. Progress will not come from regulatory action alone: it will require firms to invest, collaborate and turn technological possibility into services that customers use.
First, we will not make regulatory judgements in isolation from the technology, activity and risks before us. We will remain agnostic about which technologies industry chooses, while applying the principle of same risk, same regulatory outcome. Different technologies may require different regulatory approaches, but each must deliver an equivalent outcome that protects confidence in the financial system. Industry, in turn, must demonstrate how its chosen technology delivers that outcome.
Second, we will support experimentation, scaling and, where appropriate, transition towards systemic scale by incumbents and new entrants. We will use proportionate requirements, conditions and activity limits, and we will learn from live activity. Industry must match that pathway with ambition: move beyond proofs of concept, commit capital and senior attention, bring real users and transactions into testing, and build credible plans for commercial scale.
Third, we will improve our processes. We will be clear about what we require, realistic about response times and prepared to adapt where evidence shows that unnecessary friction can be removed without weakening standards. Industry must engage early and candidly, submit robust evidence, identify dependencies and risks, and tell us where requirements create genuine barriers, with practical proposals for resolving them.
Fourth, we will support the Digital Markets Champion and the Government's Wholesale Financial Markets Digital Strategy. In particular, we will support the Champion’s work to convene industry where coordinated action is necessary to deliver a system-wide outcome, while leaving commercial choices to the market. But convening is not delivery. Firms must be prepared to invest together, agree workable standards, resolve collective-action problems and build the connections that allow successful propositions to operate across the market.
And fifth, we will work with domestic and international authorities to reduce fragmentation and support responsible paths to cross-border growth. Interoperability across systems must be matched by coherence across standards, legal frameworks and regulatory approaches. Industry must design for that reality from the outset: participate in standard-setting, build interoperable services and avoid closed solutions that reproduce fragmentation in digital form.
Assets, market participants, infrastructures and financial flows operate internationally. And so the benefits of innovation will be greatest where firms can operate across borders with confidence, rather than navigate fragmented legal, regulatory and technical frameworks.
That does not require every jurisdiction to adopt the same technology or market structure. But it does require cooperation on outcomes. Authorities, market infrastructures and industry will need to work together internationally to promote interoperability, support common standards where appropriate, and ensure that differences in legal frameworks, regulatory expectations, supervisory approaches, settlement arrangements and risk-management practices do not create unnecessary barriers to cross-border activity.
The Bank attaches considerable importance to international engagement. Through our work with overseas authorities, standard-setting bodies and market participants, we want to help shape an environment in which innovation can scale across borders while preserving financial stability and confidence. Modernisation will succeed more quickly, and deliver greater benefits, if markets evolve in ways that are capable of working together internationally.
These commitments are not a promise that every experiment will succeed. They are a commitment that good ideas can be tested fairly, regulatory expectations will focus on outcomes, and successful innovation will have a credible route towards permanence. But the route will only matter if industry uses it. The challenge to firms is to bring forward propositions with real commercial value, invest for scale, collaborate where markets need collective solutions, and demonstrate that innovation can meet the same outcomes of trust, resilience and stability. That is the partnership required to move from possibility to permanence.
Conclusion: from possibility to permanence
The UK begins from strong foundations: a trusted legal system, established market infrastructure, deep capital markets, active government and regulatory programmes, and firms willing to experiment. The challenge now is to use those assets to their fullest potential.
Technology, law, money, infrastructure, standards and commercial demand must develop as one ecosystem. Industry must identify propositions that solve genuine problems and make the investments needed to realise them. Authorities must preserve confidence, remove unnecessary obstacles and provide proportionate pathways. Government must provide the strategic and legislative architecture. And all of us must keep learning from evidence.
The penicillin story began with a striking possibility. Its enduring impact came from the difficult work that followed: testing, refinement, production and adoption across a whole system. Digital finance is at a different frontier, but it faces a related test. We have demonstrated much of what the technology can do. We now need to build the conditions in which the best applications can be trusted, connected and used at scale.
The Bank will not pick the winning token, ledger or business model. Commercial value should drive adoption. But commercial success will be sustainable only where it is safe and responsible, where legal and operational foundations are strong, and where confidence can continue as activity grows through strategic coordination between actors to adopt, adapt and scale.
The new horizon is not a financial system in which everything is tokenised. It is one in which innovations that offer real value can move from possibility to practical use, and from practical use to lasting scale, on foundations strong enough to retain the confidence of the market.
Thank you.
I would like to thank Shane Scott, Andrew Bailey, Sarah Breeden, Michael Yoganayagam Richard Spooner, Priya Mistry, Kushal Balluck, Mark Strasshine, Steven Dyer, Nina Turnbull and Edward Denbee for their help in preparing these remarks
