Tokenized Assets and Compliance: The Key to Winning the Digital Securities Race
SEC’s Peirce Emphasizes the Importance of Compliance in Tokenization Models
With the rise of tokenized assets and Wall Street’s increasing adoption of blockchain technology, the Securities and Exchange Commission (SEC) is making it clear that compliance will be a critical factor in determining the success of digital securities. SEC Commissioner Hester Peirce made a statement on July 9, highlighting the importance of adhering to federal securities laws in the evolving market of tokenized assets. She stated:
Tokenized securities are subject to the same regulations as traditional securities. Market participants must abide by federal securities laws when dealing with these assets.
While blockchain technology has the potential to revolutionize capital formation and financial models, Peirce emphasized that it does not change the legal status of the underlying assets. She cautioned against assuming that blockchain can alter the fundamental nature of securities.
Various players in the financial industry are exploring different tokenization strategies. Some companies are tokenizing their own shares, while others are issuing tokenized entitlements or assets-backed instruments. Each approach comes with its own set of legal and operational risks, including regulatory uncertainties and counterparty risks.
Peirce recommended a thorough analysis of token structures:
Market participants involved in the distribution, purchase, and trading of tokenized securities should carefully consider the nature of these assets and the legal implications of securities laws.
She also pointed out that certain token structures could fall under the category of security-based swaps or synthetic instruments, which may be restricted from trading on specific platforms, especially for retail investors.
Despite the need for caution, Peirce expressed a willingness to modernize regulatory frameworks. She encouraged companies to engage with the SEC if they feel that existing rules do not align with the realities of blockchain-driven markets. The SEC is open to evaluating exemptions or updates to regulations in response to technological advancements. However, Peirce reiterated that while technology may evolve, the foundational principles of U.S. securities laws remain unchanged.