A report from the International Organization of Securities Commissions (IOSCO) has shed light on the challenges within the emerging tokenization market, particularly highlighting uneven efficiency gains, legal uncertainty, and inconsistent regulatory frameworks.
The report, IOSCO’s final assessment on the tokenization of financial assets, adopts a cautious stance, noting that while tokenization could “enhance efficiency and transparency,” it also “introduces new risks or amplifies existing ones that regulators must comprehend and address to safeguard investors.”
Identified risks include a lack of legal certainty, operational vulnerabilities, and cyber threats. Although these risks are not new, they present differently in a distributed ledger technology (DLT) environment, necessitating customized risk controls, according to IOSCO.
Additionally, the report points to interoperability challenges and a scarcity of reliable settlement assets as obstacles to broader adoption of tokenization.
Efficiency gains are described as “uneven” among participants, particularly for those still dependent on traditional trading infrastructure and post-trade processes.
IOSCO has observed that regulatory approaches vary significantly, with some members employing existing frameworks and others issuing new guidance or establishing sandboxes specifically for tokenization.
The organization advises its members to embrace the principle of “same activities, same risks, same regulatory outcomes” and consider applying its Policy Recommendations for Crypto and Digital Asset Markets as well as its Policy Recommendations for Decentralized Finance in the context of tokenized financial assets.
“Although adoption remains limited, tokenization has the potential to transform how financial assets are issued, traded, and serviced,” remarked Tuang Lee Lim, chair of IOSCO’s board-level fintech task force. “Members creating regulatory frameworks for tokenized financial assets would benefit from referencing these Policy Recommendations.”