On Security Tokens and Global Regulatory Risk

May 06, 2023

Executive summary: it is important to distinguish between utility and security tokens. Legislation for utility tokens is tightening and under increased regulatory scrutiny. Legislation for security tokens is not. In fact, the regulators prefer security tokens and increasingly introduce regulation to support it.

DigiShares provides white label software for tokenization of real-world assets and soon an exchange to trade tokenized real-world assets. Assets are almost always tokenized in the form of securities, such that the end-product becomes a tokenized security – or a security token.

Security tokens represent a subset of the overall crypto market. Whereas crypto is generally unregulated and increasingly scrutinized by regulators, security tokens fall within existing securities regulation and are fully regulated within this scope. We differentiate between utility and security tokens. Utility tokens are tokens that in most jurisdictions are not regarded as securities. In the US, the SEC has said repeatedly that they view most tokens as securities.

The big financial services firms have recently shown a lot of interest in security tokens, because they see it as a safe and regulated way to realize efficiency improvements and increased liquidity with blockchain tech:


Global regulation is tightening up around unregulated utility tokens and increasing requirements for registration, compliance, KYC and AML – to eventually match the already present requirements of security tokens.

DigiShares is constantly monitoring the evolution of regulation around crypto and security tokens. Crypto regulation mostly does not influence the security token industry since we are working within existing securities regulation. If a country supports the digitization of securities (digital share certificates, digital share cap table, etc.) then it will normally support tokenized securities as well, since the fact that the shares are tokenized is viewed as just an implementational aspect.

This is the case in many countries including: Singapore, Austria, Australia, the UK, Denmark, Norway, Malaysia, Germany, France, Canada, Hong Kong, Korea, and the US.

Some countries do not outright support security tokens since they have requirements for paper-based share certificates, notarized share transfers, share stamp duty taxes, etc. These are general hindrances for the digitization of shares that have nothing to do with tokenization.

DigiShares employs a legal counsel who is an expert in security token regulation. In addition, we have a network of 40+ legal firms across the world who can advise in the space, including CMS, DLA Piper, and Grant Thornton.

The consensus is that security tokens is what the regulators prefer. They want any token to be either classified as a security – or to be at least treated with similar rules for governance, investor protection, and compliance.


In terms of security tokens, the US is world-leading. The regulation around tokenized securities is clear and well understood by legal firms. If the SEC had their way, they would want everything to be security tokens. The SEC has provided a framework to determine whether a digital asset is a security.

The SEC has not at any point issued statements or regulation intending to ban, restrict or limit security tokens.


Europe is a patchwork of individual country regulations. Securities regulation is not harmonized currently but increasingly so. Hence, some countries support security tokens 100% such as Germany, the UK, France, Denmark, Switzerland, Austria, etc. whereas others are yet not fully clarified such as Sweden and Spain.

The European Union is motivated to take the global lead in innovation related to blockchain. The MiCA regulation which was approved a few weeks ago is a big step in this direction.

We have legal partners in Europe such as CMS (leading real estate practice in the UK) that can also back our points on a call, if helpful, including Charles Kerrigan of the London office.

Middle East

Countries in the Gulf are starting to introduce regulation for security tokens. The UAE fully supports it through the ADGM regulator. Bahrain have recently opened for security tokens. Qatar also supports it.


APAC-based countries are now coming on board as well. Singapore and Australia were the first. Malaysia supports it. Hong Kong and Korea have recently introduced regulation. Others are coming as well.

We have legal partners in each country and region who we can involve in a discussion.

The general consensus is that more and more countries want to support digitized and tokenized securities as it allows for efficiency improvements, more liquidity and more innovation.