Global: IOSCO Warns of Legal and Regulatory Risks in Emerging Tokenisation Market

The International Organization of Securities Commissions (IOSCO) has released a new report highlighting the risks and regulatory challenges associated with the growing tokenisation of financial assets. The global securities watchdog cautions that, while tokenisation can enhance efficiency, transparency, and accessibility in capital markets, it also introduces new layers of risk that require careful oversight and consistent regulatory treatment.

In its final report on financial asset tokenisation, IOSCO takes a measured stance, noting that tokenisation may streamline certain processes but can also “introduce new risks or amplify existing ones that regulators must understand and address to protect investors.”

Among the risks cited are legal uncertainty, operational vulnerabilities, and cybersecurity threats. Although these risks are not new, IOSCO notes that they manifest differently in distributed ledger technology (DLT) environments, necessitating tailored compliance controls, risk assessments, and governance frameworks.

The report also points to interoperability challenges and the lack of credible settlement assets as major obstacles to the broader adoption of tokenised financial markets. Moreover, efficiency gains remain uneven, with some participants — particularly those dependent on traditional trading and post-trade systems — seeing fewer benefits compared to digital-native institutions.

IOSCO observed that regulatory responses to tokenisation remain fragmented across jurisdictions. While some securities regulators are adapting existing frameworks, others are experimenting with new policy guidance, regulatory sandboxes, and pilot programmes tailored for tokenised assets.

To promote consistency, IOSCO urges its members to apply the “same activities, same risks, same regulatory outcomes” principle when overseeing tokenised financial products. The organisation also recommends leveraging its Policy Recommendations for Crypto and Digital Asset Markets and Policy Recommendations for Decentralized Finance (DeFi) to strengthen regulatory compliance, risk mitigation, and governance within tokenised ecosystems.

“Although adoption remains limited, tokenisation has the potential to reshape how financial assets are issued, traded, and serviced,” said Tuang Lee Lim, Chair of IOSCO’s Board-Level Fintech Task Force. “Regulators developing frameworks for tokenised financial assets would benefit from applying IOSCO’s policy recommendations for crypto and DeFi markets.”

IOSCO’s report underscores the importance of regulatory intelligence, compliance automation, and risk-based supervision as tokenisation technologies continue to evolve. As markets explore new models of RegTech innovation and compliance analytics, the global regulatory community faces the task of ensuring that the efficiency gains from tokenisation do not come at the expense of investor protection, market integrity, or financial stability.