Governments and regulatory bodies are introducing new blockchain regulations to govern the frameworks for tokenised securities and assets.Asset tokenisation has come a long way since its first mention a few decades ago. Not only has it found a place in mainstream finance and supply chain, but blockchain regulation is making strides towards standardization in the tokenization of assets.
In this article, we examine key findings from the OECD’s report on Regulatory Approaches to the Tokenisation of Assets. New, tailored frameworks for tokenised assets and DLT-based (Distributed Ledger Technology) markets are being developed to govern emerging decentralised networks and infrastructures.
To facilitate the tokenisation of assets, whether representing physical assets in digital form or issuing traditional financial instruments in tokenised form, regulators are increasingly relying on prominent DLT use cases in financial markets. As the implications for market functioning and participant behaviour are considerable, policymaking in this area faces several challenges.
The innovative nature of DLTs
The innovative features of DLTs pose inherent challenges for integration into existing, centralised regulatory and market structures. Many of these challenges remain unresolved as both markets and underlying technologies continue to evolve rapidly. Crucially, some of these issues are not universal; they depend on the specific characteristics of the DLT in use.
Accordingly, regulators are working to distinguish between public, permissionless DLTs (such as Ethereum or Bitcoin) and private, permissioned DLTs (such as Hyperledger Fabric or R3 Corda) when designing regulatory frameworks. This distinction is vital when addressing governance, security, and compliance-related challenges.
Policy Approaches Across Jurisdictions
Most jurisdictions with active tokenised markets adopt a technology-neutral approach to regulation for financial services, which they also apply to tokenised assets and their markets (e.g. European Commission, FCA, US regulators). Under a technology-neutral principle, the regulatory perimeter and the subsequent treatment of financial products/services and activities are not influenced by the technological medium through which the product/service or activity is provided.
Industry participants, investors and financial consumers have argued that greater clarity around the regulatory and supervisory frameworks applied to tokenised assets and markets would assist the development of fair and sound markets for such instruments, even in the case of technology-neutral approach to policymaking, where the same rules will apply to the same types of risk.
Tailored Frameworks and Emerging Examples
Despite the prevalence of technology-neutral frameworks, some jurisdictions have developed specific, tailor-made regulatory regimes to govern parts of the tokenised asset ecosystem. Notable examples include:
- France, Luxembourg, and Switzerland, which have created bespoke legislation for blockchain-based financial instruments.
- Germany, which has implemented a legal framework for the issuance of electronic securities (eWpG), including provisions for DLT-based securities issuance.
- Malta, with its comprehensive Virtual Financial Assets (VFA) framework targeting crypto-assets and related services.
These regulatory models serve as testing grounds for innovation, while aiming to preserve financial stability and consumer protection.
The Road Ahead
As decentralised finance (DeFi) and markets for tokenised and crypto-assets grow in size and systemic importance, ongoing efforts in regulation, supervision, and enforcement will be critical. The ultimate goal is to ensure that core protections, such as investor safeguards, market integrity, and financial stability, are upheld, whether transactions occur in traditional systems or on decentralised, blockchain-based platforms.
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