SEC Reaffirms Securities Laws Apply to Tokenisation

The U.S. Securities and Exchange Commission has made it quite evident that current legal obligations are not superseded by blockchain technology. The commission officially clarified how federal securities laws apply to tokenised securities in a joint statement released by many SEC divisions. The statement emphasised that an asset’s legal standing as a security is not affected just because it is listed on a distributed ledger.

The SEC clarified that the regulations remain the same regardless of the storage method of records. The same standards for registration, disclosure, custody, and investor protection remain the same whether data is stored on a blockchain or in a conventional database. This clarification coincides with a growing trend of tokenisation among fintech firms, digital asset platforms, and financial institutions seeking to update the infrastructure of capital markets.

• SEC Confirms Technology Neutrality in Securities Regulation
• Issuer-Sponsored Tokenised Securities
• Third-Party Tokenised Securities and Structural Risks
• Custody, Recordkeeping, and Transfer Obligations Remain Unchanged
• Why the SEC’s Guidance Matters for the Tokenisation Market?

SEC Confirms Technology Neutrality in Securities Regulation

The Commission explained that regardless of how ownership or interests are documented or transferred, including via distributed ledger technology (DLT), a financial instrument is nonetheless considered a security under U.S. law. The Securities Act of 1933 and the Securities Exchange Act of 1934 must be followed in all offers and sales, according to the SEC.

This means that whether securities are offered in a traditional format or as tokenised assets, issuers must still register them with the SEC or meet the requirements for a legitimate exemption. Additionally, the SEC categorically rejected the notion that tokenisation produces a new asset class that is unregulated.

Instead, the Commission reaffirmed that legal assessments must be grounded in an instrument’s economic reality and the rights in grants, not in technology that represents it.

Issuer-Sponsored Tokenised Securities

The SEC clarified a key aspect about issuer-sponsored tokenized securities, which are situations in which the original issuer or an authorized agent chooses to turn a security into a token and record ownership on a blockchain.

The SEC emphasized that tokenization does not alter the issuer's legal obligations, even though it can serve as a contemporary method of maintaining data. Reporting obligations, disclosure requirements, and anti-fraud regulations remain fully applicable.

In the absence of a legitimate exemption, tokenized shares, notes, or comparable securities issued by a business directly still need to be registered. The SEC further noted that statutory responsibilities cannot be replaced by blockchain technology, even if it improves efficiency, transparency, or settlement speed.

Innovation is not enough for issuers to get around investor protection regulations. For businesses thinking about tokenized equity offerings, blockchain-based shareholder data, or on-chain cap tables, this advice is extremely crucial.

Third-Party Tokenised Securities and Structural Risks

The SEC further clarified that third-party tokenised securities, which are produced by organisations other than the original issuer, differ significantly from issuer-sponsored tokenisation. The Commission claims that because these third-party structures put an additional layer between the investor and the underlying asset, they may give rise to other regulatory and investor protection issues.

Two popular third-party models that are presently in use in the market were highlighted by the SEC in its statement:

• Custodial Tokenised Securities: In custodial tokenised securities, a third party issues tokens representing a claim or entitlement to an underlying traditional security while retaining custody of that security. In such cases, investors rely heavily on the custodian’s operational controls, financial stability, and compliance with custody regulations.
• Synthetic Tokenised Securities: Synthetic tokenised securities do not represent direct ownership of the underlying asset. Instead, they provide financial exposure through contractual or derivative-like arrangements. The SEC noted that these structures may introduce additional risks, including counterparty exposure and complex rights enforcement.

In both models, the SEC made it clear that token holders’ rights depend on the legal structure, not the technology. The presence of a blockchain token does not automatically confer shareholder or creditor rights unless those rights are legally established.

Custody, Recordkeeping, and Transfer Obligations Remain Unchanged

The SEC’s statement includes significant instructions on recordkeeping and custody. Regulated intermediaries, including broker-dealers and Investment advisers, are required to adhere to current custody regulations even in the case of tokenised securities, the Commission informed.

Additionally, it made clear that adhering to transfer agent standards, maintaining correct records, and safeguarding client assets are all still obligations that come with using blockchain. Participants in the market must carefully assess whether their tokenisation schemes comply with the most recent custody and settlement regulations.

Although blockchain can spur innovation, the SEC’s position makes it clear that it cannot take the place of the regulatory obligations intended to protect investors and uphold market integrity.

Why the SEC’s Guidance Matters for the Tokenisation Market?

One of the most explicit indications to yet from the U.S. Securities and Exchange Commission about the treatment of tokenized securities under current legislation is this guidance. The fact that established safeguards still hold true in blockchain-based marketplaces gives investors peace of mind.

It is also clear to developers and fintech companies that innovation must remain inside predetermined regulatory bounds. Compliance will continue to be based on conventional securities law rather than novel use of blockchain technology, even if the SEC welcomes technical advancement.

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