ClearToken clears Bank of England hurdle for tokenised settlement

The Bank of England has cleared ClearToken CSD Limited to enter the live phase of its Digital Securities Sandbox (DSS), making the firm the first non-bank approved to act as a digital securities depository in the UK and only the second entrant overall to reach this stage. The Bank issued ClearToken's Gate 2 Sandbox Approval Notice on 18 September 2026, and ClearToken announced the news publicly on 22 September 2026.

The approval matters to anyone who deals in UK gilts, sterling and non-sterling corporate bonds, or shares in FTSE 350 companies, because it lets ClearToken act as notary, provide central maintenance and operate settlement for tokenised versions of those instruments under live supervision, rather than in a test environment. But the notice stops well short of a full commercial launch. Live activity is conditional on further steps the Bank has not yet confirmed as complete, the firm's capacity is capped asset by asset, and the sandbox itself is a temporary legal arrangement rather than a new permanent UK regime.

What the Bank has actually approved

Gate 2 is the go-live stage of the DSS, the framework under which the Bank of England and the Financial Conduct Authority (FCA) let firms operate digital market infrastructure under a temporarily modified legal and regulatory framework. It permits live business under initial limits; it is not full authorisation under a permanent regime.

Under its notice, ClearToken is approved as a Digital Securities Depository to perform three core functions: acting as notary (recording the securities when they are created), providing central maintenance (keeping the central record of who holds them), and operating a securities settlement system (the system that processes transfers between parties). The instruments in scope are certificates, each represented by a Tokenised Depository Interest, referencing UK government debt, sterling corporate bonds, non-sterling corporate bonds, and shares in companies included in the FTSE 350 at the time the interest is created. Each Tokenised Depository Interest may be issued only on a one-for-one basis against its underlying asset, and the underlying asset must be safeguarded and administered by an entity that is appropriately authorised by the FCA.

Not yet live: the conditions attached

The Bank's notice makes clear that ClearToken's ability to begin live activity remains conditional on three things: a satisfactory Gate 2 self-attestation, confirmation of its FTSE 350 share limit, and confirmation of a capital injection sufficient to meet the applicable minimum capital requirement. Nothing reviewed for this article confirms that all three conditions had been met, or that a live customer transaction had taken place, as of 25 September 2026.

ClearToken's own announcement states that its CT Settle service "will now extend" to tokenised securities continuously. The Bank's approval notice does not itself specify operating hours and does not certify that live settlement has begun. Readers should treat the approval and an operating commercial service as two different things until the Bank or ClearToken confirms the conditions have been satisfied.

There is a related wrinkle in how the milestone is described. ClearToken has characterised itself elsewhere as a first-of-its-kind depository. The Bank's own dashboard, last updated 21 September 2026, lists HSBC Bank plc as the first firm to pass Gate 2, on 13 July 2026, with ClearToken second. The precise description, drawn from the Bank's own list, is that ClearToken is the second firm to reach Gate 2 and the first that is not a bank.

The caps that limit scale

ClearToken's Gate 2 approval sets firm-specific capacity limits, effective from 18 September 2026:

These are firm-specific figures, not the wider capacity available across the DSS as a whole, and they are separate from any later uplift the Bank might grant as ClearToken progresses through the sandbox's later stages.

Why the market is watching continuous settlement

ClearToken says its CT Settle service will operate continuously, 24 hours a day, seven days a week, for tokenised securities. If that holds in practice, it could let collateral move outside the hours that conventional settlement systems keep, and support faster intraday repurchase agreements — short-term secured loans where one party sells a security and agrees to buy it back, typically used to manage cash and liquidity. The Bank's own guidance confirms that digital securities issued in the DSS may be used in repurchase agreements, subject to the relevant agreements and rules.

The Bank has separately run Project Meridian Securities, an experiment that simulated intraday repo using smart contracts to handle eligibility checks, collateral allocation and settlement. That work illustrates how tokenised infrastructure could, in principle, automate parts of liquidity management. It is a Bank experiment, not evidence of ClearToken's own transaction volumes, and no source reviewed for this article shows measured cost savings, settlement-time reductions or adoption figures for ClearToken specifically. Any benefit to UK collateral and repo markets remains prospective, and depends on which participants join, which collateral is eligible, whether cash settlement is reliable, and whether the legal and operational arrangements between counterparties are in place.

The cash leg, and who carries the risk

ClearToken is approved as what the Bank terms a "type (b)" banking-services provider, meaning it may engage one or more credit institutions to handle the cash side of a transaction, subject to applicable rules and contractual safeguards. Where settlement uses commercial bank money rather than central bank money, participants carry credit exposure to that settlement bank — if the bank ran into difficulty, money awaiting settlement could be at risk. ClearToken has identified this risk itself, pending access to a Bank of England omnibus account. Which bank or banks will provide this service, in which currencies, has not been disclosed in the material reviewed.

What protections do not apply

ClearToken's Gate 2 notice does not approve it to provide services directly to retail customers. The Bank has also said that DSS participants do not initially have to demonstrate the same level of resilience assurance as a fully authorised financial market infrastructure, and that firms should be assessed with the sandbox's temporary nature in mind. Digital Securities Depositories are not required to obtain designation under the Settlement Finality Regulations while operating in the DSS; instead, they must disclose the rules governing settlement finality within their own system, so that users can assess for themselves what protection applies.

A sandbox, not a settled regime

The DSS operates under a temporarily modified legal and regulatory framework, created through regulations that came into force on 8 January 2024, and is due to run until 8 January 2029 unless HM Treasury extends it through further legislation. Gate 2 approval is temporary sandbox permission. A later stage, sometimes referred to as Gate 4, could in principle lead to a new permanent UK regime, but the Bank has not decided whether or how that will happen. Experience and feedback from the sandbox, including from firms such as ClearToken, are intended to inform that decision — they do not pre-empt it.

What to watch next

The immediate items to track are whether the Bank confirms ClearToken's FTSE 350 equity limit, whether ClearToken satisfies its outstanding Gate 2 conditions, and whether the Bank or the firm confirms a first live issuance and settlement. Beyond that, readers should watch for named participating banks and asset managers, disclosure of which institution is providing cash settlement, and any statement from HM Treasury on the design of a permanent regime once the sandbox's evidence base develops further. The Bank of England's DSS dashboard and ClearToken's own approval notice remain the primary places to check for updates, rather than commercial summaries of them.