In a report issued Tuesday (Nov. 11), the International Organization of Securities Commissions (IOSCO) offered its views on how tokenization, which refers to the creation of blockchain-based tokens linked to real-world assets, is being adopted across different markets and how regulators are responding.
“The financial sector has been actively exploring distributed ledger technology (DLT) to deliver services and tokenize financial assets,” the group said in a Tuesday news release. “While tokenization may enhance efficiency and transparency, it also introduces new risks—or amplifies existing ones—that regulators must understand and address to protect investors.”
IOSCO’s Fintech Task Force (FTF) found that commercial interest in tokenization is growing, but adoption remains limited, with interoperability challenges and the “lack of credible settlement assets” holding back scalability, the release said.
In addition, “efficiency gains are uneven,” per the release. While tokenization can reduce settlement cycles and bolster collateral mobility, many market participants still depend on traditional infrastructure for trading.
“Risks are familiar but evolving,” the release said. “Legal uncertainty, operational vulnerabilities and cyber risks mirror existing risk categories but manifest differently under DLT, requiring tailored risk controls.”
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Tokenization has evolved from a niche concept to a “strategic imperative across financial services,” increasingly upholding payment security and the trading of real-world assets, PYMNTS reported in September.
Benefits include security and fraud prevention, as network tokenization conceals sensitive data and reduces fraud while increasing transaction approval rates. Asset tokenization, meanwhile, allows for instant settlement, automated compliance, “24/7 trading and fractional ownership,” the report said.
However, there are challenges facing tokenization, including “regulatory and legal ambiguity.” Regulators in the United States, such as the Securities and Exchange Commission, have not yet formalized frameworks for tokenized securities, although some officials have indicated they are “willing to work with” different approaches, per the report.
There are also technology and adoption gaps, as “digital identity, on-chain privacy, smart contract security and cross-border infrastructure remain evolving areas,” the report said.
