KPMG – Tokenisation and traditional finance, Apr 2024

Traditional and digital finance are merging, creating opportunities for 'tokenisation' of assets. This involves representing traditional assets as digital tokens on a blockchain. Financial firms are exploring tokenisation, but must ensure their risk management and governance systems are up to date. There is uncertainty about the future role of firms in the financial landscape, with questions about settlement assets and disintermediation. Tokenised deposits are a simple application of tokenisation, representing customer deposits through new technology. Regulatory frameworks differ for tokenised deposits in the UK and EU, with specific requirements for eligibility and protection. The potential uses of tokenised deposits include payments, credit intermediation, trading, and settlement, but regulators are emphasizing AML and risk management. Despite the potential benefits, there are few examples of tokenised deposits in practice, such as a trade using deposit tokens issued by J.P. Morgan.