Tokenised credit: what to settle before issuing a token

Write down what the holder owns

A token demonstration can begin with a wallet and a transfer. A credit transaction should begin with the documents. Does the holder own a direct claim against the borrower, an interest through an intermediary or a contractual participation in someone else's position? Those are different arrangements.

Ask counsel to connect the instrument to the issuer, governing documents, payment rights and enforcement rights. Establish who maintains the authoritative holder record and how that record relates to the token ledger. A mismatch needs a resolution process before the first subscription.

This is an operating-model discussion, not a recommendation to issue a particular instrument. The legal classification and permitted activities depend on the structure and jurisdiction.

Resolve eligibility before allowing a transfer

A technically valid transfer may still be prohibited by the instrument's terms or applicable rules. Determine which checks apply to a subscriber and which must be repeated when an existing holder transfers an interest.

Define the roles of the issuer, administrator, custodian and any authorised service provider. Specify who can approve an exception, freeze a transfer or correct an error. The interface should show the reason a transfer cannot proceed and the party who can resolve it.

Do not treat wallet possession as a substitute for identity, eligibility or signing authority. An organisation may need different people to prepare a subscription, approve it and control the destination.

Choose the settlement asset deliberately

The BIS Financial Stability Institute's summary of tokenisation risks distinguishes settlement assets such as stablecoins, tokenised deposits and central bank money. It notes that these choices have different risk profiles. Calling all of them digital cash hides a decision the parties need to make.

Document which asset the investor delivers, which account or wallet receives it and what evidence completes the subscription. Address any conversion step, fees and a mismatch between payment and token delivery.

If a provider reports that a request was accepted, the product should not immediately announce that ownership and cash have both settled. Define the confirmations required for each part and how the team handles an incomplete exchange.

Reference: BIS FSI: Financial stability implications of tokenisation ↗

Design the work after issuance

Credit needs servicing whether or not the ownership record uses tokens. Someone must calculate obligations, receive cash, apply priorities and explain distributions. An investor needs to see the position they hold and the payments attributable to it.

Preserve effective dates. A transfer between two holders should not obscure who was entitled to a distribution for the relevant period. Record any retained rights and fees according to the actual agreement rather than inferring them from the latest wallet balance.

The same discipline applies to amendments. A maturity extension or payment deferral may require consent and executed documents. Changing a field on the token platform should not silently rewrite the contract or overwrite the original schedule.

Walk through a correction before the launch

Ask the team to demonstrate a failed subscription, a payment return, an ineligible transfer and a lost-access scenario. Identify who can act, what evidence they need and what record remains afterwards. Where recovery is unavailable, disclose that limitation rather than implying that operations can always reverse the transaction.

Also ask how the platform handles a borrower payment shortfall. The holder register does not resolve arrears, determine contractual default or choose a recovery strategy. Those decisions require the authority and evidence established in the financing documents.

Our view is that issuance should be the point at which these responsibilities are already clear. A more attractive transfer screen will not compensate for an unexplained distribution six months later.

• Who has the legal claim and who maintains the holder record?
• Which investors and transfers are permitted?
• What evidence establishes payment and delivery?
• Who services the credit and resolves corrections?
• Which decisions require lender, investor or legal approval?

Questions from the review room