UK banks press on with tokenised deposits after BoE stablecoin warning

By Phoebe Seers

LONDON, Sept 26 (Reuters) - Britain's biggest lenders are pushing ahead with plans to launch tokenised versions of customer deposits next year, a move that follows Bank of England Governor Andrew Bailey's plea to prioritise the technology over stablecoins.

Tokenisation typically refers to creating digital representations of assets such as deposits, stocks and bonds that are stored on a blockchain. Proponents say they can make transacting faster, cheaper and safer.

Banks including HSBC HSBA.L, NatWest NWG.L and Lloyds LLOY.L have launched a pilot using tokenised deposits for payments via online marketplaces, industry group UK Finance said on Friday.

BAILEY SCEPTICAL OF STABLECOINS

The pilot comes after Bailey said in July that while he was "not against stablecoins", he could not understand their need and believed tokenisation offered more value.

Stablecoins, a type of cryptocurrency pegged to a fiat currency, have boomed in popularity. U.S. President Donald Trump's GENIUS Act has brought more regulatory clarity and prompted several U.S. banks to say they could enter a market dominated by non-bank players.

On Thursday, a group of European lenders also announced plans to launch a euro-denominated stablecoin.

Bailey has warned that stablecoins take money out of the banking system and could threaten financial stability. In an interview with The Times newspaper in July, he warned banks against issuing their own stablecoins.

While the UK's Financial Conduct Authority is not expected to finalise stablecoin regulation until end-2026, the BoE has said banks can experiment with tokenised deposits within existing regulation.

A senior UK banking official said tokenised deposits lacked the "brand image of a stablecoin" but were an important technological upgrade.

Many big lenders are examining both. Citi's CEO said in July that tokenised deposits were probably more important than a stablecoin.

Tokenised deposits had not reached their full potential because they could not interact between financial institutions but the new pilot solves this, said Manish Kohli, HSBC's head of global payments solutions.

While the pilot is currently focused on domestic use cases, Kohli said the technology showed the most promise in cross-border transactions. "That’s where we’re seeing a lot of client demand," he told Reuters.

Britain's tokenised deposit pilot also involving Barclays BARC.N, Nationwide and Santander, will run until mid-2026. The pilot will also test applications in the remortgaging process and digital asset settlement.

Jana Mackintosh, managing director for payments and innovation at UK Finance, told Reuters that tokenisation allowed banks to innovate while keeping payments inside the regulated banking system.