BIS and FSB advise G20 on tokenisation’s benefits and risks

The Bank for International Settlements (BIS) and the Financial Stability Board (FSB) presented reports on tokenisation ahead of the G20 Finance Ministers and Central Bank Governors meeting in Brazil. 

The papers, released on October 22, highlighted common themes around the emerging technology of tokenisation and its impact on global finance. 

Both reports focused on the limited understanding of tokenisation and its resemblance to traditional finance risks. 

According to the FSB, “Tokenization has no generally accepted definition” and warned that it shares challenges like liquidity mismatches, leverage, and operational vulnerabilities. 

They stated that while it currently poses no major financial stability risks due to its small scale, monitoring and regulation are necessary. 

Similarly, the BIS report emphasised that tokenisation introduces credit and liquidity risks, alongside custody and access policy concerns. 

It acknowledged that these risks may manifest differently due to changes in market structure and roles of intermediaries on tokenised platforms. 

However, the BIS also pointed to potential benefits, such as improved safety and efficiency in financial transactions. 

The FSB called for increased monitoring and information sharing among central banks, suggesting that as the scope of tokenisation expands, regulatory measures will be crucial. 

BIS noted that tokenisation could provide efficiencies but requires careful oversight to avoid potential vulnerabilities. 

Both institutions urged central banks to start considering regulatory frameworks for tokenisation’s development and integration into financial markets. 

India, the previous G20 chair, strongly supported the FSB’s push for a global regulatory framework on digital currencies. 

With Brazil now holding the G20 presidency, the emphasis remains on exploring how to regulate tokenised assets effectively.