Collateral management is entering a period of significant change as markets move towards real-time settlement, tokenised assets and increasingly dynamic liquidity management. For banks and market infrastructures, the opportunity is to reduce settlement lags, broaden the pool of eligible collateral and unlock trapped capital, while navigating new challenges around interoperability, regulation and operational risk.
The Digital Banker spoke to Rob Hale, Co-Head of Global Markets at Lloyds Banking Group, about the forces reshaping collateral management, the role of AI and distributed ledger technology and why the industry may be entering a genuine structural shift in how liquidity is managed.
Where do you see the biggest pressure points emerging for collateral management over the next few years?
The most interesting dynamic is the growing opportunity to close the gap between how fast markets move and how quickly collateral can respond. Today’s model relies on end-of-day valuations and a 24-to-48-hour settlement window, and as markets become more active, there’s real value in compressing that lag—both in capital efficiency and in resilience.
There’s also a clear opportunity in broadening the collateral base. The eligible universe today is largely cash and government bonds and widening it would unlock new liquidity and strengthen the system. Encouragingly, supervisors are moving in a supportive direction: the regulatory emphasis is shifting toward dynamic rather than static liquidity management. The opportunity, in short, is around speed, breadth of eligible assets, and the capital efficiency that follows – exactly where the technology is now heading.
Tokenisation and distributed ledger technology sound great on paper. However, in practice, what challenges need to be solved before they help digital collateral systems operate at scale?
The encouraging news is that much of this is already moving off paper. Earlier this year, we completed a UK-first, using tokenised money market funds and gilts on the Hedera network as live margin for FX trades. That proved the technology works in real institutional markets. The work now is the rewarding task of turning a successful pilot into infrastructure the whole market can build on.
The first priority is interoperability. Institutional participants consistently point to ensuring tokenised assets can move easily across platforms, so liquidity stays connected rather than fragmented. Getting there rests on common data models, smart contract standards and messaging protocols – all very achievable with industry coordination.
The second is regulatory capital treatment, and here the foundations are strong: there are no fundamental legal blockers under current UK rules. The further prize comes as regulators update capital rules to reflect the reduced credit exposure that intraday settlement delivers, and we’re optimistic that continued dialogue and evidence will get us there.
The third is standardisation, alongside client education and trust. These are well-understood, solvable steps, and collectively they form a clear and exciting agenda.
What role do you see AI playing in optimising collateral allocation, liquidity management and risk monitoring in real time?
AI and DLT are naturally complementary. If DLT provides the always-on rails for collateral to move in real time, AI adds the intelligence layer that helps decide what moves, when and where.
This shows up in three areas. On allocation, AI can move collateral management from static buffering toward dynamic, predictive control across accounts and currencies, forecasting flows, anticipating needs and reallocating balances to unlock trapped capital. On liquidity, the value lies in forecasting and continuously monitoring volatility, counterparty exposures and regulatory thresholds. On risk, intelligent systems can support stress testing and reconciliation on a continuous basis.
Realising this well comes down to good foundations. Several treasuries are already exploring AI, with high-quality, well-integrated data the key enabler of strong results. And thoughtful design – building in safeguards so that automated triggers support stability rather than amplify market moves – matters greatly. The sensible path is incremental: pilots under strong governance with explainable models. Approached that way, AI becomes a powerful complement to the infrastructure we’re already building.
How should banks, infrastructures and regulators rethink governance and operational risk in a 24/7 financial system?
A 24/7 system is a real step forward, and getting the most from it means thoughtfully evolving how we manage risk alongside it. Tokenisation changes the nature of settlement risk, shifting it toward immediacy and funding precision. Liquidity, then, becomes something to engineer, price and govern deliberately. The institutions that design for that from the start will be well placed.
For banks, the opportunity is in real-time liquidity management. Because continuous settlement reduces the role of end-of-day cycles, real-time liquidity management and central bank backstops become more valuable.
For infrastructures, it’s about evolving the operating model. Always-on settlement encourages a shift toward continuous infrastructure and follow-the-sun support.
For regulators, sound governance of the code itself becomes central, anchored in clear policy frameworks, safe settlement assets, legal certainty and international coordination. The same principle should guide the evolution of tokenised deposits: innovation should advance within the regulated banking system and under its existing protections, allowing markets to modernise while preserving the safeguards that underpin trust.
Do you think the industry is approaching a genuine structural shift in how liquidity is managed globally, or are we still in the early phase?
The direction is a genuine structural shift, and we’re in the early, foundational stretch of building it, which is an exciting place to be.
On the structural side, this is more than incremental. We’re seeing a fundamental rethinking of how collateral operates and how capital is deployed, with real benefits for systemic resilience, capital efficiency and market liquidity. Collateral and payments are converging on shared digital infrastructure, with regulated systems enabling on-ledger settlement in central bank money and laying the foundation for atomic, programmable transactions.
On the early-phase side, there’s plenty of opportunity ahead. Our own work is progressing steadily from validating transactions toward scaling them, and milestones such as 24/7 settlement in tokenised central bank money are firmly on the roadmap.
An ecosystem in which tokenised assets, digital money and traditional infrastructure work together seamlessly represents a genuine structural shift, and its foundations are being laid as we speak.
