Lloyds, JP Morgan, HSBC all performed their first tokenised deposit settlement last year. While regulation is often regarded as having a dampening effect on innovation, it is existing regulation which enabled these banks to open up their tokenised deposit offerings.
Last week, Lloyds became the latest bank to settle a tokenised sterling deposit – and a first for the UK banking sector.
Tokenised deposits, digital representations of bank deposits which are processed on the blockchain, have quickly become one of the fastest growing innovations to come out of the banking sector.
JP Morgan, HSBC and Citi are the latest banks to have developed use cases and launched pilot programmes to test the speed of settlement with tokenised deposits.
Speaking to Payment Expert, Peter Left, Lloyd’s Head of Digital and Markets Innovation explains the freedom tokenised deposits afford customers.
“Tokenised deposits have the ability to give customers control in their transactions, making them conditional and automatic upon events they define, allowing us to provide enhanced collateral efficiency, reduce friction, and unlock new trading opportunities,” says Left.
Why tokenised deposits over stablecoins?
While stablecoins seemingly exploded onto the scene last year, many established markets, such as the UK, remain slow in establishing a framework for their regulation while other markets have already implemented rules.
The US passed the GENIUS Act for stablecoin issuance regulation, and the European Union’s Markets in Crypto Assets (MiCA) has classification rules on which stablecoins are eligible on licenced platforms.
Although these frameworks have established stablecoin issuance and classification standards, several global banks continue to explore tokenised deposits due to two primary factors: interest and regulation.
Ahead of rolling out its first deposit token transaction in June 2025, the head of JP Morgan’s blockchain division (known as Kinexys) Naveen Mallela boldly claimed tokenised deposits were a “superior alternative to stablecoins” in an interview with Bloomberg.
The launch of JP Morgan’s JPM Coin, a dedicated tokenised deposit currency, in November 2025 further cemented one the world’s largest bank’s commitment to using blockchain-based technology to accelerate the speed of transactions across borders and in other currencies.
And why does Mallela believe tokenised deposits are superior to stablecoins? “Because they are based on fractional banking, we think it is more scalable,” she told Bloomberg.
Banks are able to earn a percentage of a customer/business deposit for required reserves with fractional banking.
If tokenised deposits deliver on projections from Citi to become a $100-$140 trillion market by 2030, this represents an extremely valuable avenue for banks as many businesses and financial institutions begin to realise the benefits of settling payments via the blockchain.
“While both Tokenised Deposits and stablecoins bring benefits, not all digital money is created equal,” says Lloyd’s Left. “Our view, consistent with the Bank of England, is that money must behave like money: stable in value, trusted, protected and regulated.”
The regulatory perimeter
The reason why banks have already begun to develop use cases and launch pilots for tokenised deposits with relative ease, is because the regulatory perimeter has a clear boundary.
Lloyd’s first tokenised sterling deposit launch was able to take place thanks to the bank’s compliance with existing UK regulations under the Financial Services and Markets Act 2023 (FSMA 2023).
Under new amendments to the pre-existing FSMA, implemented in 2023, the protection deposit limit was increased from £85,000 to £120,000 for individuals and businesses, which also applies to tokenised deposits.
As all UK banks must comply with FSMA 2023 regulations, a lane was opened for tokenised deposit growth as it was confirmed by the UK Treasury in October 2023 there is no need for regulatory measures as they are already covered by existing deposit taking rules.
This was confirmed by the Bank of England in November 2023 as part of its cross-authority roadmap on innovation in payments.
Under Section 3, it outlined “banks, including those that accept ‘tokenised’ deposits, will continue to be regulated by the PRA for prudential purposes and the FCA for conduct purposes”.
In a letter from the Prudential Regulation Authority (PRA) responding to the UK Treasury’s call for comment on its cryptoasset regulation roadmap, it was further revealed that a proposed stablecoin regulatory framework be separated from tokenised deposits.
Although tokenised deposits and stablecoins have different regulatory parameters, banks must still comply with PRA regulations under the Financial Services Compensation Scheme to protect retail customers’ funds.
Payment Expert understands the Bank of England is working closely with the financial industry to ensure innovation around tokenised deposits – in addition to stablecoin projects – go hand in hand with financial stability and retail depositor protections.
The BoE issued a letter to deposit takers in 2023 which provided guidance on how innovation should take place in line with its regulatory objectives, and to ensure competition in the area is not stifled.
The same regulatory clarity is apparent in the US. Banks issuing tokenised deposits will have to comply with Federal Deposit Insurance Corporation‘s (FDIC) guidelines on insurance carrying over to bank balances.
As tokenised deposits are digital representations on ledgered blockchains, the FDIC has made it clear it intends to roll out requirements for US banks pertaining to risk guidelines, such as a standard $250,000 limit on tokenised deposit reserves.
Could we see a UK boom this year?
So far, tokenised deposit pilots have largely been settled in US dollars, with some banks beginning to test the waters with multi-currency settlements for cross-border payments with the Euro.
While US banks have been in large part the first to launch their tokenised deposit offerings, the UK has been preparing in the background.
Lloyd’s was one of several UK banks, including NatWest, Barclays, Santander UK and Nationwide, to join an industry-wide pilot phase headed by UK Finance. This program intends to “position the UK as a leader in payments innovation, delivering tokenised deposits and programmable payments against three use cases”.
Charlie Nunn, Chief Executive of Lloyds, emphasised the important role tokenised deposits could play in the mortgage and lending industry over the next five years. He told The Financial Times that tokenised deposits can rapidly accelerate document sharing, payment processing and remove manual friction of the entire home buying, or lending process.
“Tokenised deposits also support lending to the real economy, enabling households and businesses to access credit, which drives economic growth – meaning that the utility of tokenised deposits is broader compared to stablecoins,” adds Left.
“That’s why we see tokenised deposits as the logical next step for commercial bank money. They meet existing regulatory standards and protections, support economic growth, while also delivering innovation in speed and functionality.”
