Policy-as-Code as an Institutional Requirement for Tokenized Rails

Technologist Jay Smith argued on LinkedIn in 2026 that "This is the specific issue that will sort the winners from the losers." He described a growing split between institutions that rely on pilot programs and those that ship production systems.

In his post he contrasted firms that wait for regulatory clarity and treat blockchain as an information-technology upgrade with firms that build programmable compliance. This allows controls and trust to be automated rather than handled manually after settlement.

That distinction matters because it frames tokenized payment and settlement rails as a control surface that must carry enforceable rules, auditability, and supervisory comfort. It is positioned as more than just a faster channel for existing processes.

What Programmable Compliance Means

A 2024 working paper from the International Monetary Fund describes programmability along two dimensions. The first is external programmatic access, where participants use code to call system data and functions. The second is internal programmatic capabilities, where executable rules run inside the payment or settlement infrastructure itself.

External access covers application programming interfaces that let banks and other actors submit instructions or query balances. Internal capabilities determine which tasks the system will execute automatically, under what conditions, and with what guarantees.

Citi Institute analysis on programmable money from Citi describes digital value that "executes automatically under set conditions." It embeds compliance rules at the point of transaction, so each transfer functions as its own audit trail that verifies counterparties, thresholds, and policy limits before execution.

Taken together, these definitions show programmable compliance as an architectural layer that applies policies in software at the moment of transfer. This moves oversight from after-the-fact sampling toward pre-trade and pre-settlement enforcement.

Why Pilots Stall

Pilot programs and regulatory sandboxes let institutions test tokenization use cases under limited scope. However, they seldom define production-grade answers about rule governance, identity management, audit scope, or upgrade processes.

The report on tokenization of financial assets from the International Organization of Securities Commissions explains the European Union's DLT Pilot Regime. It operates as an EU-wide framework that lets certain market infrastructure providers seek exemptions from existing rules. This allows them to develop distributed-ledger-based trading and settlement systems for securities while supervisors observe how those systems behave at limited scale.

As volumes and product complexity grow, institutions must decide who can approve emergency rule changes. They also need to determine how auditors can reproduce the state of a smart contract at a specific block height, and where supervisors will collect exception reports and event logs.

When those design decisions are postponed until after pilots conclude, the hand-off from proof-of-concept to revenue-bearing service can stall. This happens because risk, legal, and supervisory teams lack the evidence and controls they expect from other critical systems.

Risk and Regulation in Code

The report on the financial stability implications of tokenisation from the Financial Stability Board notes that programmability allows smart contracts to execute transactions automatically in response to pre-set triggers. It also warns that liquidity pressures could spread faster and wider when liquidations or other automated actions are tied to market data feeds.

Automatic liquidation based on collateral values or other conditions can help enforce risk limits consistently. Yet it can also amplify stress if many positions unwind at once while underlying reference markets are closed or illiquid.

Analysis from Beige Media on enterprise standards for digital asset governance describes how institutional investors evaluate tokenized rails. They use familiar frameworks such as SOC 2 and ISO/IEC 27001 for controls and evidence, ISO 20022 for structured payment data, and FATF Recommendation 16 for Travel Rule information about transaction originators and beneficiaries, rather than relying on novel cryptographic arguments alone.

For programmable compliance, this means transaction objects need to carry structured fields that can support identity, routing, and purpose information in formats that auditors and regulators can test. This goes beyond the minimal data needed for settlement.

Building Production Systems

Reporting by Beige Media shows digital asset custody providers describing their platforms in terms of configurable policies, multi-party approvals, and detailed reporting. They position onchain execution as the downstream result of a control surface that resembles established enterprise systems, instead of focusing on experimental cryptography.

In that framing, policy models define who can initiate, approve, and execute high-impact actions. Audit-grade event trails capture each policy evaluation, role check, and transaction in formats aligned with SOC 2 and ISO/IEC 27001 expectations.

A separate Beige Media case study on distressed real estate summarizes Bank for International Settlements research that observed investment minimums dropping to roughly 50 US dollars once buildings were tokenized. Fractional tokens enabled many smaller investors to participate in recapitalizing properties that would otherwise require a single large buyer.

Beige Media's discussion of third-party due diligence explains how Federal Reserve interagency guidance expects banks to tailor oversight of key vendors to risk. It also advises considering background checks for key personnel, reinforcing that governance for partners and service providers is part of the same control surface that programmable systems must support.

These examples highlight how tokenized products that reach production tend to bundle programmability with clear governance, cash flow distribution logic, and reporting structures. They present smart contracts as part of an integrated system rather than in isolation.

Standards Through Implementation

Standards in payments and messaging have often hardened through implementation rather than through top-down decree. ISO 20022 illustrates this dynamic by defining a structured model for payment and reporting messages that many systems are now migrating toward, as summarized in Beige Media's overview of enterprise frameworks.

In the programmable compliance context, similar standard-setting happens when institutions align rule engines and transaction fields with established expectations for identity attributes, limits, approvals, and disclosures. These models are then exposed to counterparties and auditors as part of normal operations.

Institutions that treat compliance logic as part of the product surface can shorten the time between a new rule or guidance and a tested policy rollout. They can also shape counterparties' expectations about the minimum data and control hooks that any interoperable tokenized rail should support.

Firms that postpone these investments may still adopt tokenization, but they are more likely to adapt to rule sets defined by earlier movers instead of influencing how controls are embedded.

Outlook

Programmable compliance is moving from concept to operational choice, as reports from the IMF, Citi, IOSCO, the FSB, and Beige Media outline architectures in which identity, eligibility checks, and audit trails are embedded directly into tokenized settlement rails.

Institutions that have already budgeted for policy-as-code tooling can push versioned rule updates across their systems when requirements change. Peers that remain at the pilot stage will need new project cycles to implement similar controls.

Smith's LinkedIn post presents that gap as a strategic risk rather than a technical detail. If programmable compliance becomes the default for regulated tokenized finance, the institutions that invested early in configurable controls, data standards, and audit hooks will be the ones whose practices define the baseline that others must follow.

Sources

• Jay Smith. "This is the specific issue that will sort the winners from the losers." LinkedIn, 2026.
• Xavier Lavayssière; Nicolas Zhang. "Programmability in Payment and Settlement." International Monetary Fund, 2024.
• Ronit Ghose. "How Programmable Money Will Redefine Compliance and Control." Citi, 2025.
• International Organization of Securities Commissions. "Tokenization of Financial Assets." IOSCO, 2025.
• Financial Stability Board. "The Financial Stability Implications of Tokenisation." FSB, 2024.
• Beige Media. "Bridging Digital Asset Execution with Established Enterprise Frameworks." Beige Media, 2026.
• Beige Media. "Why Partner Background Checks Protect B2B and Public Deals." Beige Media, 2026.
• Beige Media. "How Tokenization Adds Liquidity to Distressed Real Estate." Beige Media, 2026.