Global securities regulator IOSCO issued a stern warning on Tuesday that the "tokenization" of real-world assets such as bonds and stocks creates significant new risks for the investing public, Reuters reported.
As the financial industry debates the potential of this technology, the regulator has highlighted specific dangers, including investor confusion about ownership and increased counterparty risk from third-party token issuers.
Tuang Lee Lim, chair of IOSCO's financial technology working group, said:
"Although adoption remains limited, tokenization has the potential to reshape how financial assets are issued, traded, and serviced."
However, the report warns the novel structure of these products, combined with the potential "spill-over effects" of volatile cryptocurrency markets, introduces vulnerabilities that are not fully covered by existing financial regulations.