Overview

The Central Bank of Ireland (the “Central Bank“) today published its awaited Discussion Paper 12 (“DP12“) on Distributed Ledger Technology (“DLT“) and tokenisation in financial services, with the aim of stimulating dialogue on the future role of DLT and tokenisation within the Irish and European financial services ecosystem.  Stakeholders are invited to submit responses to the questions posed in DP12 by 5 June 2026.

What is Tokenisation?

Tokenisation refers to the issuance or representation of assets in the form of digital tokens using technologies such as DLT, encompassing both “digitally native” tokens issued directly on DLT and “non-native” tokens that are digital representations of assets originally issued elsewhere.  DLT systems also enable smart contracts, which could play a central role in transforming financial services by enabling programmability through executable contractual and procedural actions based on pre-defined criteria.

Key Benefits Identified

The Central Bank identifies several potential benefits of tokenisation:

• Settlement efficiency: DLT can collapse the traditional two-step model of trading and settlement into a single process, embedding transaction records directly into a shared ledger and removing or reducing the need for various reconciliations in payments. This offers the potential for real-time or near-instant settlement, continuous (24/7/365) system availability, and lower operational costs by reducing intermediary layers.
• Fractionalisation and access: Tokenisation could deliver an additional way to achieve fractionalisation of ownership of assets, making investments that were once illiquid or inaccessible available to a wider range of participants, with the potential to increase diversification and broaden participation in financial markets.
• Transparency and auditability: Financial market functioning could benefit from the data integrity, immutability and automatic auditability that are inherent to many DLT-based systems, which may also provide a clearer record of beneficial ownership across the financial system.
• European capital markets integration: The integration of tokenisation and DLT offers the potential to transform Europe’s underlying market structures and, if the new ecosystem were designed in a more integrated and harmonised manner, could help reduce fragmentation in European capital markets.

Enabling Conditions

The Central Bank is clear that the technology alone will not deliver these benefits. Key enablers include:

• Legal and regulatory clarity: Legal recognition of tokenised financial instruments as valid representations of ownership or rights will be essential to ensure token transfers correspond to final and irrevocable settlement.
• Interoperability: Without public policy intervention, DLT and tokenisation applications risk resulting in ‘walled gardens’, closed loop systems and a complex system of intermediaries and fragmented market structures, which would harm efficiency and lead to suboptimal public policy outcomes.
• Settlement in central bank money: Central bank money settlement supports the reduction of counterparty and credit risk, ensures finality of settlement, prevents fragmentation of the money system and is an essential underpinning of both monetary and financial stability.

Sectoral Focus: Funds

Ireland is one of the largest global domiciles for investment funds, with a strongly international investor base and extensive cross-border distribution.  In DP12, the Central Bank dedicates significant attention to the funds sector, examining tokenised MMFs and ETFs in detail, noting that the Department of Finance recommended developing a pathway to adoption of tokenisation in its Funds Sector 2030 review.

Irish authorised funds and their fund managers have been exploring the deployment of tokenisation applications in existing and new fund offerings. These have been primarily focused on the digital representation of an investor’s share or unit in an investment fund in the form of a token, typically using a digital twin model. The Central Bank distinguishes this from a future state where we might see the tokenisation of the underlying assets or digitally native tokenisation of instruments within a digitally native fund portfolio. DP12 includes illustrative use cases to support reflection on the potential benefits of different types of fund tokenisation, as well as noting the risks that will need to be managed effectively.

Next Steps

The Central Bank intends to use DP12 as a basis for structured engagement with domestic and international stakeholders and will publish a feedback statement assessing whether existing policy and regulatory approaches are fit for purpose. With 16 discussion questions spanning legal clarity, governance, infrastructure, funds, payments and risk, DP12 represents a significant opportunity for market participants to shape the regulatory framework for tokenisation.

Should you wish to discuss DP12 or tokenisation further, please do not hesitate to reach out to any of our team.