The Hague Conference on Private International Law (HCCH) has launched a new drive to offer legal clarity to businesses dealing in digital tokens.
The initiative seeks to “propose a normative project on the private international law issues relating to digital tokens.”
The HCCH is an intergovernmental organization offering global interpretation and private law unification.
The proposal acknowledged tokenization as an enabler of fast and secure transactions, including cross-border value transfer. It streamlines transactions by increasing transparency and reducing intermediaries. Beyond transfers, tokenization is gaining traction in the investment world through tokenized shares in digital funds, with global giants like Citibank (NASDAQ: C), BlackRock, and HSBC (NASDAQ: HSBC) leading the charge.
However, despite the rising prominence, most jurisdictions have no laws to govern tokenization, the HCCH notes. The most popular approach has been extending existing rules to cover the new sector.
The HCCH believes that digital tokens’ decentralized nature and the variety of participants in the process pose a novel threat to existing regulations.
“An additional complexity arises as the development of domestic substantive law relating to the various use cases of digital tokens has not been coordinated or uniform. This leads to a fragmented, possibly multi-jurisdictional, and multi-stakeholder arena, which may differ across the different use cases of digital tokenization,” the organization added.
The HCCH recommends a study on digital tokens, including a global definition and a layout of which tokens should be covered under this umbrella. Some areas to consider include real-estate tokens, non-fungible tokens (NFTs), payment tokens, stablecoins, and utility tokens. The study would exclude securities, carbon credits, and central bank digital currencies (CBDCs), as there are other studies on these.
The HCCH proposes that member states nominate subject-matter experts from their jurisdictions to contribute to the study, intending to provide a report at next year’s governing council meeting.
While the HCCH works on a global framework, individual nations are working on tokenization regulations as the industry grows rapidly.
This week, the managing director of the Monetary Authority of Singapore (MAS) revealed that it considers regulating tokenization a priority.
“MAS is working with these pilot managers on the legal and regulatory treatment and implications of tokenized investment funds,” Chia Der Jiun told attendees during an industry event.
Hong Kong recently unveiled standards for tokenized financial products as it pursues its goal of being the global tokenization hub.
Watch: Tokenizing assets on a scalable blockchain
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