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Tokenized deposits, stablecoins and e-money: A Comparative guide

10 June 2024

From the use of metal coins to the dematerialization of money, the advent of distributed ledger technology (DLT) and tokenisation arguably represents the next stage in the evolution of money and the payments ecosystem. As noted in the PRA’s Dear CEO letter on ‘Innovations in the use by deposit-takers of deposits, e-money and regulated stablecoins’ dated 6 November 2023, we are now seeing “innovations in the forms of digital money and money-like instruments available to retail customers”.

In light of emerging forms of privately issued digital money and money-like instruments, policymakers are seeking to update the regulatory framework to ensure that customers continue to be protected from potential harm.

The UK regulators’ ‘Cross-authority roadmap on innovation in payments’ highlights, in particular, the following:

Electronic money, or ‘e-money’, which has been available for some time as a money-like instrument to facilitate payments;
Stablecoins, a form of digital asset which purports to maintain a stable value relative to a fiat currency; and
Tokenized bank deposits whereby bank deposits would be issued in ‘tokenised’ form on programmable ledgers.

As UK regulators continue their efforts to clarify the regulatory frameworks that will apply to each form of digital money and money-like instrument, we set out a short comparative guide, including what these instruments are and how they may be used in practice, as well as an overview of the relevant regulatory regimes.

In recent years, Hogan Lovells has received a significant volume of similar queries in this context, including from banks seeking to develop a retail-facing digital money solution. This is expected to be an area of continued and growing interest for us – stay tuned as we continue to explore and publish our insights on this space.

For more information, please contact a member of the team or visit the Hogan Lovells Digital Assets and Blockchain Hub.

Authored by John Salmon, Roger Tym, Grace Wyatt, and Christina Wu.