DLT & Tokenisation In Financial Services | Central Bank Of Ireland

The Central Bank of Ireland (CBI) issued its Discussion Paper 12 (DP12) on 5 March 2026. DP12 is a basis for structured engagement with domestic and international stakeholders, to seek input and garner insights from stakeholders in the ecosystem.

The CBI highlights the benefits and opportunities DLT and tokenisation presents for financial services, identifies key enablers to leverage such benefits and sets out potential risks and challenges associated with such innovative technologies. There is a specific section in DP12 considering issues for investment funds and tokenisation.

General Takeaways

• Participants should have clarity over how and by whom the systems are managed.
• Central banks and public authorities need confidence that governance arrangements applicable to these systems meet standards of fair access, transparency, risk management and operational accountability, similar to those applied to existing financial market infrastructures.
• Governance that is opaque or dominated by a narrow or unknown group of tech actors could inherently pose risks to market integrity and financial stability.

What is DLT & Tokenisation?

DLT is a technology that achieves a single, shared 'source of truth' through a common ledger, aiming to replace multiple independent ledgers with a synchronised digital record. DLT nodes are independent computer servers that join and maintain the shared ledger based on the common rules of the network.

In the context of DP12, tokenisation refers to the issuance or representation of assets in the form of digital token, using technology such as DLT. Tokens can take the form of "digitally native" tokens issued directly on a DLT or "non-native" tokens that are digital representations of assets originally issued elsewhere.

What are the Benefits of Tokenisation?

DP12 sets out a number of benefits and opportunities regarding the migration to tokenised infrastructure, which are summarised below.

• Efficiency: collapsing the conventional two-step model of trading and settlement into a single process by embedding transaction records directly into a shared ledger. With DLT systems, both trade and settlement occur simultaneously, and this provides for near-instant settlement, 24/7/365 availability, lower operational costs and more seamless cross-border transactions.
• New economic opportunities: tokenisation enables the operation of smart contracts which could have a range of applications in finance, both in wholesale financial markets as well as in retail financial services.
• Transparency and auditability: financial market functioning could benefit from the data integrity, immutability and automatic auditability that are inherent to many DLT-based systems.

What are the Risks associated with DLT & Tokenisation?

DP12 identifies several risks, which are summarised below.

Enabling tokenisation

The CBI acknowledges that the technology and associated systems in and of themselves will not deliver the promised benefits for financial services and considers the following "enablers" as important to leveraging the benefits of DLT and tokenisation:

• Legal Recognition of tokenised financial instruments and legal status of smart contracts.
• Interoperability and Standardisation across systems, networks and jurisdictions.
• Tokenisation of Assets and Money to unlock the true potential of tokenisation in finance.
• Central Bank Money remains as the ultimate settlement asset across the financial system to support the reduction of counterparty and credit risk and to protect monetary and financial stability.
• Operational Resilience and Scalability processes and procedures in place with respect to such technologies to maintain continuity of services in the face of cyber-attacks, etc.
• Digital Identity, Verification and Trust Infrastructure to ensure transaction source legitimacy/authority.
• Transparent and Accountable Governance to sustain trust in DLT networks.

Tokenisation in Funds and Example Use Cases

Ireland is a leading EU domicile for funds, particularly money market funds (MMFs) and exchange-traded funds (ETFs). Tokenisation presents a transformative opportunity for such funds.

DP12 contains a specific section considering aspect of funds and tokenisation. Tokenisation may allow certain element of workflows in a fund, such as subscriptions, redemptions, transfers and corporate actions, to be automated through programmable rules embedded in tokenised fund units. However, tokenisation does not alter the need for independent valuation, liquidity management, depositary oversight and investor disclosure obligations. DP12 focuses, in particular, on the application of liquidity management tools in a tokenised environment.

Initial use cases for Irish authorised funds have tended to focus on the digital representation of an investor's holding in the form of a token, typically using a digital twin model.

DP12 sets out 4 illustrative potential use cases for MMFs and ETFs summarised below.

• Use Case 1: MMF units are issued or represented in tokenised form on a permissioned DLT platform, eligible for use as collateral in secured transactions, such as margining arrangements, securities financing transactions, or intraday liquidity facilities.
• Use Case 2: MMF units are issued natively on a permissioned DLT platform, with subscriptions/redemptions via smart contracts. MMF remains within a controlled and regulated environment, but key operational processes are increasingly automated.
• Use Case 3: ETF units are issued natively on DLT, with issuance, redemption and settlement via smart contracts. Authorised participants can interact directly with the DLT, subject to predefined rules.
• Use Case 4: ETF tokens interact with third-party service providers and other DLT-based financial infrastructures, while remaining subject to applicable regulatory requirements. Portfolio level tokenisation of ETFs offer exposure to baskets of underlying tokenised assets.

DP12 also sets out the operational arrangements, possible benefits and key risk and supervisory considerations in the case of each potential use case.

Next Steps

The CBI has requested written responses from stakeholders to the queries raised by the CBI in DP12 to be submitted no later than 5 June 2026. Thereafter, the CBI will publish a feedback statement and will also assess whether existing policy and regulatory approaches are fit for purpose to enable the realisation of the benefits and management of the risks relating to the integration of tokenisation and DLT in financial services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.