What Does It Take to Make Real-World Assets Compliant? Insights from Former SEC Counsel
New rules from the SEC are helping companies turn real-world assets like property or loans into digital tokens. However, legal limits and different regional laws still make it hard to use these tokens widely and safely.
What happened
The U.S. Securities and Exchange Commission (SEC) has increasingly focused on how tokenized real-world assets (RWAs) fit within existing securities regulations. According to a recent interview with a former SEC counsel, the agency views many tokenized RWAs as securities under current law. This classification means issuers and trading platforms must comply with the Securities Act of 1933 and the Securities Exchange Act of 1934, including registration, disclosure, and anti-fraud provisions.
This evolving regulatory stance reflects the SEC’s interpretation that the tokenization process does not exempt an asset from securities laws. Instead, token issuers are expected to adapt traditional compliance frameworks to this new technological context. For example, ETF issuers and tokenization platforms are required to provide clear disclosures about the underlying assets, the ownership rights attached to tokens, and the associated risks. These requirements align with existing SEC filings observed in asset-backed ETFs, such as the VanEck Bitcoin Strategy ETF.
Beyond the U.S., jurisdictional constraints complicate compliance. SEC regulations primarily govern U.S. markets and investors, but tokenized RWAs offered globally must navigate a complex patchwork of international securities laws. Legal analysis by firms like Perkins Coie highlights this as a significant barrier to global adoption, necessitating multi-jurisdictional compliance strategies.
On the operational side, practical challenges for scaling tokenized RWAs include establishing robust custody solutions, ensuring interoperability between disparate blockchain platforms, and developing reliable valuation and audit mechanisms for the underlying real-world assets. A report by PwC underscores these issues, noting that compliance costs and complexities related to disclosures and investor protections could slow down the scalability of tokenized RWA models.
Why this matters
The SEC’s evolving approach to tokenized RWAs signals that the integration of blockchain technology into traditional financial markets will not bypass established investor protection frameworks. This has structural implications for market participants seeking to leverage tokenization for increased liquidity, fractional ownership, and efficiency.
By treating tokenized RWAs as securities, the SEC emphasizes transparency and accountability, which are foundational to market integrity. Clear disclosure requirements help investors understand the nature of their holdings and the risks involved, potentially fostering trust in tokenized assets.
However, the regulatory and operational hurdles identified—such as jurisdictional fragmentation and the need for standardized custody and valuation practices—limit the speed and scale at which tokenized RWAs can be adopted. Market fragmentation due to varying international rules may reduce the benefits of global liquidity and interoperability that blockchain promises.
In a broader policy context, the SEC’s stance may push toward the development of more tailored regulatory frameworks for tokenized assets, which could ultimately enhance legal clarity and market confidence. Until then, issuers and platforms must navigate a complex and evolving compliance landscape that balances innovation with investor protection.
What remains unclear
Despite these developments, several key questions remain unanswered. There is no publicly available finalized SEC regulatory framework explicitly addressing tokenized RWAs. It is unclear if or when the SEC will issue formal rulemakings or no-action letters to provide definitive guidance.
The extent to which existing exemptions under regulations such as Regulation D or Regulation A+ can be effectively applied to tokenized RWAs without weakening investor protections is not specified. Additionally, how cross-border regulatory coordination might evolve to address jurisdictional challenges remains uncertain.
Practical standards for custody, valuation, and audit of tokenized RWAs that satisfy the SEC and other regulators have yet to emerge. There is also a lack of empirical data on market adoption rates and the financial impact of compliance costs specific to tokenized RWAs.
Finally, the available sources do not provide insight into market sentiment or trader reactions to these evolving regulatory requirements, leaving an incomplete picture of the practical market implications.
What to watch next
- Potential SEC rulemakings or no-action letters that clarify compliance expectations for tokenized RWAs.
- Developments in the application of existing securities exemptions (Regulation D, Regulation A+) to tokenized asset offerings.
- Progress on international regulatory coordination efforts addressing cross-border compliance for tokenized securities.
- Emergence of industry standards or regulatory guidance on custody, valuation, and auditing practices for tokenized RWAs.
- New disclosures or filings from ETF issuers or tokenization platforms that illuminate practical compliance approaches.
The SEC’s current regulatory approach to tokenized real-world assets underscores the tension between fostering innovation and ensuring investor protection. While some foundational principles are clear, significant uncertainties remain about how compliance frameworks will evolve and how market participants will adapt. The resolution of these open questions will shape the future trajectory of tokenized assets in financial markets.
Source: https://cointelegraph.com/news/former-sec-counsel-ownership-rwa-compliant?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.