Global securities watchdog says 'tokenization' creates new risks

PARIS, Nov 11 (Reuters): Crypto tokens linked to mainstream financial assets could create new risks for investors, the global securities regulator IOSCO said in a report on Tuesday, as the finance industry remains split on the merits of "tokenization".
Tokenization - the process of creating blockchain-based tokens linked to real-world assets such as stocks or bonds - has seen a revival of interest among crypto enthusiasts this year, with new tokenized products being sold to the public via online brokers.
IOSCO, a body whose members are the regulators responsible for almost all of the world's securities markets, said that the majority of the risks around tokenization come under pre-existing frameworks, but that there could be new risks and vulnerabilities stemming from the underlying technology.
"Although adoption remains limited, tokenization has the potential to reshape how financial assets are issued, traded, and serviced," said Tuang Lee Lim, chair of IOSCO's board-level fintech taskforce.
The different ways tokenized assets are structured could leave investors uncertain about whether they own the underlying asset or just the crypto token, and the third-party token issuer creates counterparty risks, IOSCO added, echoing some of the concerns raised by the European Union's securities regulator in September.