The Bank of England Has Drawn Its Map. Now What?

Shawn Jhanji
Mar 3
4 min read

At the Tokenisation Summit back in January 2026, Sasha Mills of the Bank of England outlined a clear priority for the coming year: building the foundations for the next generation of digital financial infrastructure.

Her speech focused on three areas that will shape the UK’s approach to digital markets:

regulated stablecoins
tokenised collateral
expansion of the Digital Securities Sandbox

Taken together, these initiatives signal that digital asset infrastructure is moving steadily from experimentation toward regulated financial market development.

The following article summarises key themes from that speech.

Innovation With Stability at the Core

Mills described the role of the Bank of England as similar to that of an air traffic controller for the financial system.

Air traffic controllers do not prevent new aircraft from flying. Instead, they create safe corridors and controlled environments where innovation can occur without jeopardising other traffic. Financial regulators play a similar role in capital markets.

Their responsibility is to maintain systemic stability while allowing the financial system to evolve. As new technologies reshape how assets are issued, traded and settled, regulators must create frameworks that allow innovation while protecting the wider system from disruption.

This balance between innovation and resilience is becoming increasingly important as financial market infrastructures incorporate distributed ledger technologies.

Stablecoins and the Future of Payments

One of the Bank’s key priorities is the development of a regulatory framework for systemic stablecoins used in UK payments.

Stablecoins have the potential to modernise both retail and wholesale payments by enabling faster settlement and programmable transaction functionality. However, if they become widely used within the financial system, they must meet the same standards of trust and resilience as existing forms of money.

The Bank of England and the Financial Conduct Authority are working jointly on a regime that would ensure stablecoins used at scale meet strict standards around backing assets, redemption mechanisms and operational resilience.

The proposed framework may also allow systemic stablecoin issuers to hold deposit accounts at the Bank of England and potentially access liquidity facilities designed to maintain stability during periods of market stress.

At the same time, regulators are carefully considering the broader economic implications. A significant shift toward stablecoin-based payments could affect bank deposits and the flow of credit through the real economy.

Tokenised Collateral and More Efficient Markets

Another central focus of the Bank’s work is the potential use of tokenised collateral within financial markets.

Collateral plays a critical role in financial stability, underpinning transactions across clearing houses and trading systems. Improvements in how collateral moves between institutions could significantly increase market efficiency.

Digital infrastructure offers the possibility of near-instant collateral transfers, improved liquidity management and reduced operational friction across the trade lifecycle and several pilot initiatives are already exploring how tokenised assets could streamline collateral movement and improve automation within financial markets.

However, regulators emphasise that new infrastructure must meet the same resilience standards as traditional systems. Operational security, legal enforceability and robust risk management remain essential.

The Bank of England indicated that tokenised versions of assets already accepted as regulatory collateral may be eligible under existing UK EMIR frameworks, provided the overall structure meets appropriate risk standards.

Further policy clarification is expected later this year.

The Digital Securities Sandbox

Currently, the UK’s Digital Securities Sandbox (DSS) sits at the centre of efforts to test new market infrastructure safely.

The sandbox allows firms to experiment with the issuance, trading and settlement of digital securities using distributed ledger technology within a controlled regulatory environment and importantly, the framework is designed to evolve as new use cases emerge. Regulators are working closely with industry participants to refine the rules as the technology develops.

However, while this process can offer an obvious and welcome way forward, it is still unclear whether the companies engaged in the Sandbox are aided in their business ambitions or caught up and hindered by regulatory quicksand.

The ideal scenario is that the Sandbox serves the benefits of both the participants and the regulators - but it appears the jury is still out.

Recent adjustments to the sandbox have also expanded its scope. Firms can now issue securities denominated in foreign currencies and explore different settlement models within the environment.

The Bank of England is also working with HM Treasury and the FCA to test the potential role of regulated stablecoins as settlement assets within the sandbox.

One of the most closely watched projects is the UK government’s Digitally Native Gilt (DIGIT) pilot. This initiative will explore how sovereign debt issuance might operate using distributed ledger infrastructure.

If successful, it could demonstrate how tokenised financial infrastructure might support major capital markets in the future.

Building Confidence in Digital Markets

Throughout the speech, Mills emphasised that the success of digital financial markets depends on trust.

New forms of infrastructure must demonstrate resilience during both stable and stressed market conditions. For regulators, this means addressing critical issues such as operational risk, legal certainty, custody arrangements and cross-border regulatory coordination.

The UK’s approach is based on close collaboration between the Bank of England, HM Treasury and the Financial Conduct Authority. International coordination will also be essential, particularly as digital financial markets increasingly operate across jurisdictions.

Regulators are already working with organisations such as the Financial Stability Board, IOSCO and the Basel Committee to align emerging standards.

A Defining Moment for Digital Finance

The UK government and its regulators have made clear that digital financial infrastructure is becoming an increasingly important part of the country’s capital markets strategy.

Through initiatives such as the Digital Securities Sandbox, new settlement frameworks and regulatory work on stablecoins and tokenised collateral, the UK is positioning itself to play a significant role in the evolution of global financial markets.

While many applications remain at an early stage, the direction of travel is clear.

The next phase of financial market innovation will not simply be driven by technology companies or startups. It will be shaped through collaboration between regulators, financial institutions and infrastructure providers.

For founders, investors and financial market participants, the message is clear: digital market infrastructure is no longer a theoretical concept. It is beginning to take shape within the regulatory frameworks that underpin modern finance.