Real World Asset Tokenization - Is a License Needed?

Real world asset tokenization is the process of transforming ownership rights in a real-world asset (RWA) into digital tokens stored on a blockchain. These RWA tokens function as tradable units on a secure, decentralized ledger.

This article aims to offer licensing requirement clarity to Real World Asset (RWA) tokenization issuers and investors. Given that the majority of RWAs are classified as securities, navigating the intricate web of rules and regulations becomes imperative.

Below, we break down the short history of the industry and also the necessary licensing requirements required for different types of products and activities related to issuing or investing in RWA products and platforms.

Key Takeaways:

• A license is often required for real-world asset tokenization when the tokenized product meets the definition of a security.
• Whether a tokenized asset is treated as a security depends on the asset, its structure, and the jurisdiction’s definition of a security.
• Fractionalized models commonly fall within securities regulation, while some direct tokenization structures may not.
• Primary issuance can sometimes be conducted by the issuer without a license, but distribution via third parties and any form of secondary trading typically requires licensed intermediaries such as broker-dealers, exchanges, RMOs, or ATS operators.
• Investor protections remain central to tokenized markets. Platforms incorporate KYC/AML, suitability checks, custodial safeguards, and on-chain transfer controls to align with regulatory expectations.

Quick question: Are all RWA Tokens Securities?

In short, not all tokenized RWAs are securities.

In the RWA tokenization landscape, determining whether a tokenized RWA is treated as security boils down to the asset being tokenized, the token’s structure, and the regulatory definition at play. Different countries employ different criteria for what qualifies as a “security”. 

The predominant structure is where the RWA is placed under the ownership of an entity and the entity is then tokenized and issued through a pooling of funds from multiple investors, giving investors indirect interests in the underlying RWA. These tokens should be regarded as securities.

Another reason why this is a commonly used structure is that some real world assets such as real estate is subject to regulatory registration, posing challenges for RWA tokenization allows fractionalization and transferability.However, a notable development in this space is the Israel Land Authority’s initiative to introduce a digital land registry and a trading exchange for tokenized real estate.

Another type of structure that exists is one where RWAs are tokenized directly but this structure appears to be less common because of issues such as impracticability, non-fungibility, lack of regulatory clarity and limited use cases.

And there are different tokenization licensing requirements for each type of RWA.

For RWA owners and token issuers, navigating these regulatory and structural intricacies require a nuanced understanding of both the intended token structure and the various legal definitions applied in different countries.

How RWA Tokenization Works?

Before examining the specific licensing questions, it helps to first understand the essential steps required to bring a real world asset onto a blockchain. The process of RWA tokenization typically involves the following steps.

1. Asset selection and evaluation

Identify the RWA and evaluate its suitability for tokenization. This includes confirming clear ownership, reviewing supporting documentation, and analyzing the asset's intrinsic valuation.

2. Legal structuring

Determine the legal framework, such as an SPV or trust, and draft the documents that specify the token holder’s rights and how the digital unit legally represents the asset.

3. Custody of the RWA and custody of tokens

Establish custodial arrangements for both the underlying physical or financial RWA and the issued digital tokens. This includes determining how the asset is held and how wallets or custodians manage token safekeeping.‍

4. Token issuance

Issue the tokens on a regulated platform and embed essential compliance rules, such as investor eligibility criteria, transfer restrictions, and jurisdictional filters.

5. Primary token offering

Investors complete KYC, AML, and suitability checks. Approved investors subscribe to the offering through a regulated RWA platform, such as InvestaX.‍

6. Secondary trading

Where regulatory permissions allow, tokens can be made available for trading within controlled, compliance-aligned environments, like regulated marketplaces.

7. Ongoing management 

Post-issuance activities, including corporate actions, distribution of returns, redemptions, and reporting, are administered according to the legal terms, with activity recorded on the unified ledger.

For more details, check out the article: Real World Asset Tokenization Process Explained

The Licensing Question

Now that we have explained how RWA tokens work and are structured, let’s break down the licensing question since there has been much confusion in the market over if and when licenses are needed for RWA tokenization. Diagram 1.0 in the following section generally illustrates the licensing requirements for primary issuance (self-issuance and 3rd party issuance /distribution) and secondary trading for different types of RWA tokens.

Where an RWA is tokenized directly (for example, through non-fungible tokens (NFTs)) so that ownership of the RWA is represented in digital rather than paper form, that may not be a security (except for equity or debt securities, since they would be securities in both paper and digital forms). But this type of structure fails to harness the full power of blockchain technology since it merely replaces traditional forms of records.

On the other hand, where there is a pooling of funds from, and issuance to, multiple investors (through fractionalization), those tokens will most likely constitute securities. This is the prevailing market structure because it unlocks the secondary trading and liquidity aspects of blockchain as well. Let’s look deeper into the licensing requirements for this structure.

In most jurisdictions, a tokenized RWA owner should be allowed to carry out its own primary issuance of RWA tokens, through self-issuance, without a license. However, most owners cannot typically rely on their own networks alone to garner sufficient interest, and have to engage third parties to tap into their distribution channels. These third parties which help to facilitate the distribution and primary issuance are colloquially known as “broker-dealers” and are required to be licensed in order to carry out these activities.

A key attraction of RWA tokenization is tradability and transferability, which happens post-primary issuance. RWA token investors do not want to be locked in forever and require options for liquidity. This is where secondary trading comes into the picture. Avenues for secondary trading such as over-the-counter (OTC) platforms and multilateral exchanges or marketplaces, where many people can come together to buy, sell, and trade RWA tokens, is pivotal for the entire RWA tokenization industry. But not just anyone can establish and operate a secondary trading venue. These come along with many regulatory requirements, such as licenses, safeguards, trading rules, and the like.

The major roadblock in the RWA tokenization space has been regulatory risk arising from operating without licenses. Applying for licenses is a tedious and costly business. Think drawn out application processes, constant engagement with and scrutiny from regulators, substantial capital requirements, and the cost of employing an entire team to help manage the whole workflow.

Many RWA owners and issuers understandably do not have the resources or the capacity to pursue such licenses. As a result, some of these players have resorted to ride roughshod over the legal requirements, only to find themselves unable to scale, or worse, coming under the watchful eye of regulators. Others have tried to devise clever structures and nomenclature in an attempt to dress their tokenized RWAs as non-securities, but this comes at the expense of expensive legal fees and without any certainty that such untested structures and nomenclature will stand the test of time. Regulators examine substance over form. Call it what you want: “STO”, “RWA” or “NFT”; if it looks and smells like a security, chances are that it is.

The Licensing Matrix Of RWA Tokenization

In the sections below, we outline various asset types and the channels through which investors can access them, along with our insights into the associated licensing and regulations.

It's crucial to note that Diagram 1.0 below serves as a general overview and guidance, considering the existence of exemptions and loopholes across different asset classes and markets. Therefore, conducting your own research (DYOR) for each asset is recommended.  

The RWA industry is in its early stages. There is still much confusion in the industry due to the existence of many different types of projects, with some operating in violation of regulations. So, it is important to understand what you are doing, what is or isn’t legal, and how to best navigate through the challenges of understanding what is going on, so that you can still capture the value in all these new opportunities.

Key Regulatory Questions About Tokenized Securities

1. Are tokenized offerings considered security offerings?

Tokenized offerings are generally treated as security offerings when the tokens represent ownership interests, economic rights, or claims linked to an underlying financial asset. The classification depends on the token’s structure, the rights it conveys, and how the relevant jurisdiction defines a “security.” Some tokenized representations of commodities or custodial assets may fall outside securities rules, but most tokenized investment products operate within capital-markets frameworks. Assessing classification early helps determine which licensing requirements apply.

2. What licenses are required for tokenized securities?

The licenses depend on the activities performed, not the technology used. Common categories include:

• Issuance and dealing in securities: Often requiring capital-markets licenses or broker-dealer approvals.
  
• Operating a tokenization or trading platform: Typically requiring exchange, ATS, RMO, or similar authorizations.
  
• Custody of the underlying asset or digital tokens: Requiring licensed custodial arrangements for both off-chain and on-chain assets.
  
• Fund-management permissions: Where the underlying structure is a collective investment scheme or managed portfolio.

Regulators apply these requirements using established frameworks for investor protection and market integrity.

3. How do regulators view tokenized securities today?

Most regulators apply the principle of “same activity, same risk, same regulatory outcome.” In practice, tokenized securities are expected to follow the same legal and operational rules as traditional securities. Jurisdictions such as Singapore, the UK, Australia, the EU, and the US have all communicated this position through guidelines, pilot programs, and supervisory statements. Tokenization may introduce operational efficiencies, but it does not remove the underlying regulatory obligations.

4. What are key regulatory considerations for tokenized securities?

Issuers and intermediaries should focus on several core areas to ensure tokenized securities are structured and managed compliantly. While specific rules may vary based on the jurisdiction and the asset's underlying structure, the following considerations are generally paramount:

• disclosure and offering documentation
  
• investor classification and suitability
  
• onboarding (KYC, AML, sanctions screening)
  
• transfer restrictions across jurisdictions
  
• compliance with securities-handling rules
  
• custody arrangements for both the asset and the token
  
• ongoing reporting and record-keeping
  

These considerations ensure that digital representations operate within the same protections expected in regulated markets.

5. How are investor protections handled on tokenization platforms?

Investor protections are built through a combination of legal structure, platform controls, and regulated intermediaries. This often includes:

• identity verification (KYC/AML)
  
• eligibility and suitability checks
  
• on-chain compliance rules that restrict transfers to permitted investors
  
• segregation of client assets
  
• licensed custody arrangements

These controls help align tokenized workflows with the standards expected in supervised financial markets.

6. Do we need to be authorized or accredited in every country our investors are based in?

Issuers generally do not need to obtain separate licenses in every investor’s home jurisdiction. Investors are required to confirm that their participation complies with local rules, and many tokenization platforms, including InvestaX, operate under a reverse-solicitation model for cross-border investors. Participation from restricted jurisdictions, such as sanctioned countries, is not permitted unless specific authorizations are in place. KYC and AML checks are performed on a case-by-case basis to ensure compliance with local and international standards.

The Future is Tokenization With InvestaX

RWA tokenization isn't merely a trend. It’s slated to be the vanguard of a revolution that transforms the investment landscape. As liquidity cascades, fractional ownership blossoms, and transparency illuminates, we stand on the precipice of a new era.

Drawing upon the wealth of expertise within our legal team, considered among the most seasoned in the industry, particularly for spearheading advancements in the RWA sector in Asia, and bolstered by our expansive network and possession of all requisite licenses to facilitate RWA issuance for global investors, InvestaX's tokenization SaaS platform stand as an unparalleled one-stop-shop for all RWA tokenization needs.

What licenses does InvestaX have that allow it to legally tokenize real-world assets and manage the trading of security tokens?

• A regulatory exemption under the Financial Advisers Act (Cap. 110), allows InvestaX to advise and provide consultancy services on units in collective investment schemes (CIS).
• A Capital Markets Services (CMS) license (No. CMS100635) granted by the Monetary Authority of Singapore (MAS). This allows InvestaX to facilitate the primary offer and issuance of securities and units in CIS, and to act as an intermediary between issuers and investors.
• A Recognized Market Operator (RMO) license, allows InvestaX to operate an organized market for securities.

Brace yourselves as RWA tokenization continues to evolve, promising innovative applications and unprecedented opportunities for investors and asset owners alike. The future is here.

Leave us a message or contact us at support@investax.io to kickstart your RWA tokenization journey in a legally compliant manner today!

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