6.4 Why the Regulatory Question Is the Central Question, and What Paper 2 Covers
- Which questions the earlier sections leave open about tokenized real-world assets, what legal or regulatory decision each waits on, and where each stood on 27 September 2026
- What supervisors and central banks name as the constraints on tokenization, and where market surveys rank law among them
- What earlier moves from paper to electronic records show about law as a gate, and where law in place has not brought scale
- Why several constraints that look like market problems turn on public decisions, and what the second paper covers
Section 6.1 made the case that regulation is part of what a tokenized asset is worth. Section 6.2 mapped the rules in force on 27 September 2026 in eight jurisdictions. Section 6.3 dated the reforms and programs already in motion. The paper's earlier sections keep returning to the law, and they do not all put the binding constraint in the same place.
This section asks why the regulatory question is the central one for the rest of the paper. It maps seven open questions to the decisions they wait on, then sets that against what supervisors, central banks, market surveys and earlier moves off paper show, including where law in place has not been enough. The test here is whether the questions this paper leaves open turn on legal and regulatory answers, and it includes the evidence that says they do not. Statuses below are as of 27 September 2026, as throughout Section 6, and the section closes with what a second paper covers.
The Questions the Paper Leaves to the Law
The table below lists seven questions that earlier sections leave open, what each waits on, and where each stood on 27 September 2026, drawing some statuses from Section 1.2, Section 6.1 and Section 6.312345.
| Open question | Raised in | What it waits on | Status on 27 September 2026 |
|---|---|---|---|
| Who may buy a tokenized private asset | Sections 3.2 and 3.5 | Investor-eligibility and investor-protection rules | US: SEC agenda lists for October 2026 a proposal on exempt offerings that may amend the accredited-investor definition; EU: retail investor protection directive awaiting Parliament's first-reading position |
| Whether a token may trade on a venue after issuance | Section 3.3 | Venue licenses and the securities-law limits on who may hold | US: temporary SEC exemption for tokenized NMS stock venues until 17 September 2031; EU: DLT Pilot reform proposed, awaiting committee decision |
| Whether settlement can run at all hours and be final | Section 3.4 | Central bank operating hours and settlement finality law | US: Fedwire expected to run 22 hours a day, six days a week, in 2028 or 2029; EU: finality regulation proposed |
| Whether a token can serve as collateral | Sections 3.1 and 3.4 | Margin and collateral eligibility rules | US: CFTC staff guidance of 8 December 2025 and FAQs of 24 September 2026 on tokenized money market fund shares as swap margin; EU: Eurosystem accepts eligible DLT-based assets from 30 March 2026 |
| Whether a token can reach decentralized finance | Section 3.4 | Rules for automated trading pools | US: SEC exemption lets automated pools trade tokenized NMS stock only among permissioned participants |
| Whether banks can hold it | Sections 1.2 and 6.1 | Bank capital rules | US: March 2026 FAQs give eligible tokenized securities generally the same capital treatment as non-tokenized ones; Basel review of its cryptoasset standard under way |
| What the cash leg is | Section 3.4 | Stablecoin statutes and central bank money on ledgers | US: GENIUS Act takes effect 18 January 2027 by Section 6.3's arithmetic; EU: Pontes operating since 21 September 2026 |
What the rows share. Every row ends in a decision that a legislature, a regulator or a central bank makes, and on 27 September 2026 several of those decisions were still proposals, reviews or dates in the future. The U.S. Securities and Exchange Commission's (SEC) regulatory agenda lists, for October 2026, a proposal to simplify the exempt offering pathways, "including potential amendments to the definition of accredited investor"1. The European Union's directive on retail investor protection rules had cleared the committee stage and was "Awaiting Parliament's position in 1st reading", with an indicative plenary date of 11 November 20262.
Two views inside the paper. Section 3.2 found that opening private markets to everyone "requires a change in securities law that no amount of engineering delivers", and left whether access rules widen as "a question for securities regulators". Section 3.2 also found that "Eligibility is not the binding constraint" for most buyers who are already permitted. Section 3.5 found that an investor hoping for wider access "is waiting on a regulatory change, not a technical one". Section 3.4 framed the regulatory question as "about how these markets are supervised rather than whether they are permitted", and Section 4.2 found that "Chain choice is a distribution decision made after the legal-right decision". Section 1.1 recorded regulatory uncertainty, together with limited institutional interest and thin secondary markets, as the reasons most projects of the 2017 to 2019 wave never reached scale. Against that, Section 3.3 found that "Nothing legal prevents a tokenized asset from trading", and Section 3.1 called interoperability and settlement assets "engineering and market-structure problems". The paper's own sections hold both views: some place the binding constraint in the law, and others place it in markets and engineering. What follows weighs the evidence for each view.
What Supervisors and Central Banks Name
Four assessments. The Financial Stability Board (FSB) wrote in October 2024 that the limited publicly available data suggest adoption is "very low but appears to be growing" and that "tokenisation projects have not scaled significantly"6. It grouped the limits into "four broad categories: market-related conditions, interoperability challenges, multi-asset transaction considerations, and legal and regulatory challenges"6. The Bank for International Settlements' (BIS) Annual Economic Report 2025 looked at more than 20 tokenized bonds of sovereign, supranational and agency issuers, worth over $4 billion7. Its report concluded: "While liquidity and cost do not appear to be barriers, legal and regulatory uncertainty and limited market experience remain challenges. These can be addressed through regulatory reforms and will probably diminish as market participants gain more experience with tokenised bonds"7. The same report names fragmentation "across both legacy and new networks" as a key challenge7. The finding concerns these bonds, not tokenized assets in general. The OECD's January 2025 paper examines eight possible reasons for the absence of a market for tokenized assets, legal issues among them8. The paper does not present the eight as a ranking. It describes a critical-mass trap in which gathering participants "is challenged by the absence of sufficient liquidity and results in such absence of liquidity at the same time"8, and says the decision to develop and scale the market "relies on the industry itself"8. The Eurosystem's exploratory work, published by the European Central Bank (ECB) on 1 July 2025, found that 64 eligible participants in nine jurisdictions settled almost EUR 1.6 billion in central bank money9. In the ECB's account, a move to distributed ledger technology (DLT) and tokenization has the potential to help overcome the fragmentation, complexity and technological inefficiencies that impede the growth of a digital and sustainable savings and investments union in Europe. "Overcoming the remaining legal and regulatory barriers is critical to this objective"9, and central bank money is "a prerequisite" for scaling DLT9 in a safe and stable way. Fragmentation and a lack of interoperability "are hindering the development of liquid DLT-based markets"9. Each of these four assessments names legal and regulatory issues among the constraints it examines, and none names them as the only one.
What officials said in 2026. On 28 August 2026, the BIS General Manager Pablo Hernández de Cos spoke about stablecoins and tokenized deposits, the settlement asset behind a tokenized transaction. He listed three sets of questions stablecoins must answer to function as a means of payment at scale: questions on redemption at par and reserves, on interoperability and finality across chains, and on anti-money-laundering controls and privacy. "These are not purely technical issues"10, he said. Policy, in his account, can mitigate some risks, but in other areas, including "fragmentation across chains", "structural frictions are harder to resolve"10. On 22 September 2026, the Financial Conduct Authority's (FCA) chief executive, Nikhil Rathi, recalled that discussions a few years earlier were dominated by the technology: "Could you tokenise a fund? Could you put a bond on a distributed ledger?"11 Summarizing responses to a joint call for input by the FCA and the Bank of England, he listed "Potential obstacles around settlement, prudential treatment, and interoperability"11. He added the related work on insolvency and cross-border conflict of laws, and firms' "pilot fatigue"11. He said industry leadership "will be just as important here as public policy"11 and then "if not more so"11. In his account, the discussion has moved from whether the technology works to what it takes to scale, and the obstacles his respondents named put law alongside settlement and interoperability.
What Market Surveys Rank
Where regulation ranks. The Global Financial Markets Association (GFMA) and Boston Consulting Group surveyed 39 GFMA members from November to December 202212. Respondents ranked business cases and payback "as the second highest barrier (after regulatory and legal)"12, so regulatory and legal concerns ranked first. Broadridge's survey of 300 financial institutions in North America and Europe, released on 27 October 2025, found: "The majority (73%) of institutions surveyed said that regulatory uncertainty is the biggest challenge for tokenization adoption"13. Calastone surveyed around 150 institutional respondents, in results published on 30 January 2024 with no fieldwork dates given14. It found: "The most frequently cited hurdle in the survey was lack of a central bank digital currency (CBDC), rated by over 80% as the first or second most prominent obstacle"14. It added: "The second concern was regulatory uncertainty"14. Where these surveys rank the barriers, regulation comes first in two and second in one, and their samples, dates and questions differ too much to be added together.
What the industry adds. A later report by GFMA and other trade associations says: "Crucially, regulatory clarity has improved in multiple jurisdictions, lowering a key barrier to institutional adoption"15. The same report says "Secondary market liquidity for tokenized assets remains shallow"15, and that DLT's benefits depend on broad adoption, "creating a coordination challenge as firms hesitate to join without existing wide participation"15. Its numbered list of five persistent barriers includes market liquidity and participation, and also legal and regulatory gaps, where it says that in many jurisdictions legal frameworks "remain incomplete"15. The list is the report's own, not a survey result. The World Economic Forum wrote in May 2025 that "while the legal and technical enablement of tokenization is foundational, only the engagement of market participants will advance adoption"16. In these reports, clearer law lowered one barrier without removing it, and liquidity and participation remained for market participants to supply.
What the Move Off Paper Showed
Securities certificates. Section 1.1 already recounts the Paperwork Crisis, when paper certificates overwhelmed brokers' back offices. In the Securities Acts Amendments of 1975, enacted on 4 June 1975, Congress made two statements17: it found that "New data processing and communications techniques create the opportunity for more efficient, effective, and safe procedures for clearance and settlement"17, and it directed the SEC to use its authority "to end the physical movement of securities certificates in connection with the settlement among brokers and dealers"17. The SEC's concept release of 22 December 2015 recounts that dematerialization was once viewed as a "utopian solution" because of "technological and legal impediments"18, and records that Delaware did not permit certificateless stock until its corporate law was amended in 198318. Section 1.1 records that moving investors off certificates "required regulatory pressure, industry coordination, and cultural change".
Checks. The Federal Reserve Board's 2007 report to Congress explains the rule under the Uniform Commercial Code (UCC) that applied before the Check Clearing for the 21st Century Act (Check 21): a bank "had to present an original paper check to the paying bank for payment under the UCC unless the paying bank had agreed to accept presentment in some other form"19. Check 21 took effect on 28 October 200419. The Board describes the Act as designed to improve efficiency "by reducing legal impediments to processing checks electronically"20. It says the Reserve Banks cut their paper check-processing offices "from 45 in 2003 to a single office in 2010"20, and that interbank check collection became "almost entirely electronic"20. The Board's March 2006 survey found that "at least 93 percent of all checks paid in the United States still involved the presentment of a paper check"19, with the rest presented electronically under agreements with paying banks. The Board attributed the initial slow pace to the "significant technological investments"19 banks had to make. The 93 percent includes paper substitute checks created under the Act, not only original paper checks.
Trade documents and German securities. The Law Commission of England and Wales said: "The current law in England and Wales does not recognise the possibility of possessing electronic documents; possession is associated only with tangible assets"21. It went on: "Industries using these documents are therefore prevented by law from moving towards a fully paperless process"21. Its report was published on 16 March 202222. The Electronic Trade Documents Act 2023 received Royal Assent on 20 July 202322. The government's explanatory notes say that before it such documents "could not therefore be used effectively in electronic form"22, and cite the Digital Container Shipping Association's estimate that more than 99% of the 16 million original bills of lading issued by ocean carriers in 2020 were on paper22. The German government's February 2021 bill for the Electronic Securities Act stated that German civil securities law then strictly required a physical certificate23. ECB staff wrote in April 2026 that about two-thirds of the tokenized bond issuers in their sample were German, and that this concentration "largely"24 stems from that Act.
When the law came first. The UK made the Uncertificated Securities Regulations 1992 on 11 February 1992, providing for title to transfer without a written instrument "in accordance with a computer-based system of procedures devised by the London Stock Exchange and known as Taurus"25. The Budget statement of 16 March 1993 referred to "the decision by the Stock Exchange last week to abandon TAURUS"26. On 14 July 2026, HM Treasury said: "The government has accepted the recommendations and will legislate to remove paper shares and mandate digital registers before the end of 2027"27. That is a stated plan, not law. The record runs both ways: where the law required paper, the law had to change before paper could go, and where the law changed first, the move off paper still depended on the systems and investment needed to use it.
Where Law in Place Was Not Enough
No conflict with existing law. The BIS released the results of Project Agorá, a project on tokenized money for wholesale cross-border payments run by the BIS with central banks and private firms, on 27 May 202628. The BIS said: "Legal analysis finds that settlement finality is achievable across all seven participating jurisdictions"28. Tokenization as the project contemplates it "does not alter the legal characterisation of, or associated obligations relating to, central bank reserves and commercial bank deposits"28, though further work is needed to define technical, operational and contractual requirements28. The Investment Association's working group reported in November 2023 that progress had been slow, "with a range of hurdles including a lack of legal and regulatory certainty"29. It also reported that the FCA and firms "have not identified any obvious or significant barriers to this baseline approach"29 in the FCA's rules for authorized funds. The finding covers the working group's baseline model only.
Law in place, small markets. ECB staff wrote in April 2026 that tokenized money market funds in the EU "are in the scope of the existing Money Market Fund Regulation (MMFR)"30. They put EU-domiciled tokenized funds at about EUR 725 million of a global market estimated at around EUR 7 billion in early February 2026, against EUR 1.73 trillion in money market funds regulated under the same regulation at the end of 202530. In November 2025 the ECB wrote that the EU had fully implemented its Markets in Crypto-Assets Regulation (MiCA)31. Euro stablecoins then totaled only around EUR 395 million, while US dollar coins made up around 99% of stablecoin supply31. The same ECB text says: "Recent regulatory clarity may have been a driver of the soaring demand for stablecoins"31. Clear rules sat beside strong demand for dollar coins and small demand for euro ones.
Design as well as existence. ESMA's review of the DLT Pilot Regime, dated 25 June 2025, counted three authorized DLT market infrastructures as of 31 May 202532, a count Section 4.2 also records. "Trading activity on authorised DLT MIs has been extremely limited to date"32. CSD Prague had recorded six DLT share issues worth EUR 11,917,753, and 21X AG one debt issue of up to USD 500 million32. Several potential applicants cited the regime's reliance on fixed thresholds, set in advance in the legislation, as "the main deterrent to entering the regime"32. "Continued uptake will depend on whether legal certainty, cash settlement mechanisms, and interoperability can evolve in parallel with these early-stage projects"32. Section 6.1 records the Commission's count of "only four participants," and Section 6.3 records the Commission's proposal to rewrite the regime. Germany's Electronic Securities Act, discussed above, is the contrasting case. A rule can exist and still see little use, and whether it is used can depend on how it is designed as much as on whether it exists.
Market Constraints That Turn on Policy
The cash leg. The hurdle Calastone's respondents cited most, the lack of a central bank digital currency14, is a decision for central banks, not for market participants. The ECB called central bank money "a prerequisite" for scaling DLT9. The Eurosystem's Pontes has been in operation since 21 September 2026 (Section 6.3). Section 3.4 notes that most on-chain settlement today happens in stablecoins, which are claims on a private issuer rather than central bank money.
Yield and hours. Once in effect, the GENIUS Act bars issuers from paying holders "any form of interest or yield" solely for holding a stablecoin (Section 6.2). BIS staff wrote in November 202533: "Following a slow start," tokenized money market funds grew from about $770 million at the end of 2023 to almost $9 billion by the end of October 202533. They add that a prohibition on stablecoin issuers paying interest makes holding stablecoins costly, particularly when interest rates are well above zero33. Tokenized money market funds seek to provide "an alternative, yield-bearing source of on-chain collateral"33. Section 3.4 describes markets that run at all hours. The Federal Reserve Board expects the Reserve Banks to extend the Fedwire Funds Service to 22 hours a day, six days a week, "in 2028 or 2029"3. It will consider going up to 22 hours every day of the year only "no sooner than two years after"3 that, depending on industry demand.
Collateral. The U.S. Commodity Futures Trading Commission's (CFTC) staff guidance of 8 December 2025 tells market participants to "consider whether a tokenized form of an asset provides a holder with legal and economic rights that are the same or functionally equivalent to the rights of the asset in traditional form"4, and says "none of the Commission's regulations require any particular technology or operational infrastructure"4. A July 2026 report by the International Swaps and Derivatives Association (ISDA) and Global Digital Finance (GDF) says money market funds were already allowed as several kinds of margin in the United States34. It says operational and recordkeeping challenges "have prevented these instruments from being used at-scale for collateral management"34, and that "a third of the states in the U.S. have not adopted Article 12"34 of the Uniform Commercial Code. The CFTC's final rule, published on 17 July 2026 and effective on 17 August 2026, removed a provision that had disqualified shares of money market and similar funds whose managers lend or repo fund assets from use as initial margin for uncleared swaps35. The rule's preamble quotes an advisory committee report that such funds' use as eligible collateral "has been severely restricted"35 by that condition. The ISDA and GDF report predates the rule's effective date. On 24 September 2026, CFTC staff said in FAQs (Section 6.1) that they would not object to tokenized money market fund shares as uncleared swap margin.
Automated pools. In its order of 17 September 2026, the SEC wrote that "permissioned AMM Liquidity Pools are unavailable for trading Tokenized NMS Stock, which may be a result of ambiguity surrounding the regulatory status of a TSV"5. An automated market maker (AMM) is a pool that prices trades by formula, and a TSV is the order's tokenized securities venue. The order lets such venues trade tokenized NMS stock only among permissioned participants, with smart contracts "deployed on a public, permissionless distributed ledger"5. Section 6.1 records the exemption running to 17 September 2031. Each of these constraints looks like a market problem, and each turns, at least in part, on a decision by a central bank, a regulator or a legislature.
Why the Question Is Central
The answer. The regulatory question is central not because it is the only constraint on tokenization, but because it often comes first, it reaches into constraints that look like market problems, and its design can shape what the market does next. It often comes first: every open question in the table ends in a decision by a legislature, a regulator or a central bank, and several earlier moves off paper, from trade documents to German securities, waited on a change in the law. It reaches into market constraints: the cash leg, operating hours, collateral, interest and automated pools. Its design can shape use: ECB staff's account of Germany's Electronic Securities Act, and the account of the DLT Pilot's thresholds that ESMA reports from potential applicants. Section 6.1 reached the same point from the other side: the obstacle it found was uncertainty, divergence and miscalibration, not the existence of rules.
The limit. None of this makes the law sufficient. The OECD says the decision to scale "relies on the industry itself"8. The World Economic Forum says only market participants' engagement "will advance adoption"16. The FCA's chief executive says industry leadership matters at least as much as public policy11. Section 3.3 found that liquidity remains "a property of markets".
The navy box holds the questions only the law can answer: title, classification, finality and who may buy. The red box holds the public decisions, by central banks, regulators and legislatures, that set the terms on which markets work: settlement money, operating hours, collateral eligibility and interest rules. The green box holds what market participants have to supply: liquidity, interoperability, demand and coordination. The dashed arrow shows that reviews of how a rule worked come before later reforms; ESMA's review of the DLT Pilot in June 2025 came before the Commission's proposal of 4 December 2025 (Section 6.3). The three run at the same time, and one decision can sit in two boxes, as the ban on stablecoin interest is law that shapes a market.
What Paper 2 Covers
Where this paper stops. This paper has described what tokenized real-world assets are, why they matter, who builds them and the rules that govern them. Section 5 will add the risks. Section 6 maps and dates the rules as of 27 September 2026, and the paper is not a legal opinion for any specific jurisdiction or transaction (Section 1.4).
Where the second paper starts. The second paper starts from the questions this one leaves open, beginning with the seven in the table at the start of this section. Each of those questions waits at least in part on a decision by a legislature, a regulator or a central bank, and on 27 September 2026 several of those decisions were still proposals, reviews or dates in the future.
Bridge to the Conclusion
Section 6 has made the case, drawn the map, dated the movement and, in this section, traced why the regulatory question sits at the center of the rest of this paper (Section 6.1, Section 6.2, Section 6.3 and the Section 6 introduction). Section 5 will treat these constraints as risks to projects. The Conclusion will draw the paper's findings together.
- Seven questions the earlier sections leave open about tokenized real-world assets, from who may buy to what the cash leg is, each wait at least in part on a decision by a legislature, a regulator or a central bank, and on 27 September 2026 several of those decisions were still proposals or future dates.
- The FSB, the BIS, the OECD and the ECB all name legal and regulatory issues among the constraints they examine, and none names them as the only one. In market surveys, regulation ranked first among GFMA members surveyed in 2022 and in Broadridge's 2025 survey, and second in Calastone's survey published in January 2024, where the lack of a central bank digital currency came first.
- Earlier moves off paper ran both ways: trade documents in England and Wales and German securities could not go fully electronic until the law changed, and until Check 21 US law required an original paper check unless the paying bank agreed otherwise; yet the UK's 1992 rules for paperless share transfer were written for a system the Stock Exchange abandoned in March 1993, and banks adopted Check 21 slowly at first.
- Law in place has not always brought scale: in April 2026 ECB staff put EU tokenized money market funds at about EUR 725 million against EUR 1.73 trillion in money market funds under the same regulation, and in June 2025 ESMA found trading on the DLT Pilot's authorized infrastructures extremely limited, with several potential applicants calling its fixed thresholds the main deterrent.
- Several constraints that look like market problems turn on public decisions: central bank money for settlement, the Federal Reserve's operating hours, collateral eligibility, the ban on stablecoin interest, and the SEC's terms for automated pools. The regulatory question is central because it often comes first and reaches into these, not because law is the only constraint; law alone is not sufficient.