Tokenised Fund Units As Collateral Goes Digital

The MFSA has issued a Position Paper exploring the use of tokenised fund units as collateral on public DLT networks. This development represents a shift in bridging traditional fund structures with emerging digital solutions. Tokenisation of financial instruments enables regulated entities such as brokers, credit institutions, and investment firms to leverage these fund units as collateral more efficiently on DLT networks, while simultaneously ensuring investor protection, compliance, transparency, and increased efficiency in collateral transfers.

The MFSA delves into the benefits of incorporating tokenised fund units as collateral. Operational efficiencies are among the primary benefits, as the settlement and transfer of tokenised assets can be completed near-instantaneously, with enhanced traceability for identifying suspicious transactions. Smart contracts can be set up to restrict the transferability of the pledged token and to detect liquidation triggers, among other things,