Regulatory Area
Tokenisation
Tokenisation is the process of issuing or representing an asset, right or claim as a digital token, usually on distributed ledger technology. The token may represent the asset itself, a legal interest in it, or a contractual claim against an issuer or custodian.
In this briefing
- What it is
- Key things to know
Assets that can be tokenised include financial instruments such as bonds, shares and fund units; forms of money such as commercial bank deposits; and physical or non-financial assets such as real estate or commodities. Tokenisation can also be used for newly created assets that exist entirely within a digital system.
The technology does not determine the legal or regulatory treatment. A tokenised bond generally remains a bond, a tokenised share remains a share, and a tokenised deposit remains a claim against a bank. The relevant rights, issuer, structure and activities must therefore be analysed before determining which rules apply.
Key things to know
Tokenisation does not change the underlying legal character
Putting an asset on a blockchain does not take it outside existing regulation. The rights attached to the token and the substance of the arrangement determine whether it is a security, fund interest, deposit, e-money token, crypto-asset or another regulated product.
The token and the underlying asset may be different
A token may confer direct ownership, indirect ownership, a contractual claim or only exposure to the value of an asset. Firms need to establish what the holder legally owns and against whom those rights can be enforced.
The full operating model matters
Regulatory analysis should cover the issuer, token holder, custodian, platform operator, transfer agent, broker, settlement provider and technology vendors. Different parts of the arrangement may trigger different permissions and obligations.
Settlement remains a central challenge
A tokenised asset needs an appropriate settlement asset. Payment through commercial bank money, tokenised deposits, stablecoins or central bank money can create different credit, liquidity, legal and regulatory risks.
Compliance can become a condition of settlement
Tokenisation allows certain compliance requirements to be embedded into the transaction flow and checked before a transfer or settlement is completed. Smart-contract logic or connected compliance infrastructure can verify conditions such as investor eligibility, KYC/KYB status, jurisdiction, product restrictions, sanctions status and transfer limits.
Interoperability and legal certainty determine scalability
Tokenisation may create new fragmentation if platforms, ledgers, identity systems and settlement assets cannot interoperate. Firms must also resolve questions around ownership records, finality, insolvency, custody and governing law before moving beyond a pilot.
For general information only. Not legal, regulatory or compliance advice.
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