IOSCO Warns of New Risks in Asset Tokenization Amid Growing Interest

​The International Organization of Securities Commissions (IOSCO) has raised concerns about the potential risks of tokenizing financial assets. In a report published on November 11, the global securities regulator warned that while existing frameworks address many of these risks, the underlying blockchain technology could introduce new vulnerabilities to the market.

As traditional financial institutions increasingly explore the potential of tokenization, which allows financial assets to be digitized on the blockchain, the concept is gaining traction. Despite the interest, adoption has been uneven, with some institutions using blockchain for faster transactions, while crypto platforms continue to face long processing times.

"While adoption is still limited, tokenization could reshape the way financial assets are issued, traded, and serviced," said Tuang Lee Lim, chair of IOSCO's fintech task force.

However, IOSCO highlighted several concerns, including confusion over ownership rights—whether investors own the asset itself or only the crypto token—and the risks posed by third-party issuers. The organization also noted that tokenization's growing links with crypto markets could lead to "spill-over effects," referencing similar warnings from the European Union's securities regulator earlier this year.

Despite the enthusiasm from companies like Nasdaq, many financial institutions remain cautious. While tokenization proponents argue that blockchain can lower trading costs and enhance efficiency, IOSCO cautioned that these benefits are not evenly distributed, as traditional infrastructure still plays a key role in trading.

As the debate around tokenization continues, the financial community will likely need to balance innovation with risk management to ensure broader, safer adoption of these emerging technologies.