The Hague Conference on Private International Law (HCCH) has launched a new drive to provide legal clarity for companies trading digital tokens.
The initiative aims to “propose a normative project on international private law issues related to digital tokens.”
HCCH is an intergovernmental organization that provides global interpretation and judicial uniformity.
The proposal recognized tokenization as enabling fast and secure transactions, including cross-border transfers of value. Simplifies transactions by increasing transparency and reducing intermediaries. In addition to remittances, tokenization is gaining traction in the investment world with tokenized shares in digital funds led by global giants such as Citibank (NASDAQ: C), BlackRock, and HSBC (NASDAQ: HSBC).
However, despite the growing attention, most jurisdictions do not have laws regulating tokenization, HCCH points out. The most widely used approach is to extend existing rules to cover new sectors.
HCCH believes that the decentralized nature of digital tokens and the diversity of process participants pose new threats to existing regulations.
“The development of domestic substantive law related to the diverse use cases of digital tokens is not coordinated or unified, creating additional complexity. This leads to a fragmented, multi-jurisdictional and multi-stakeholder arena, which may vary depending on the different use cases of digital tokenization,” the organization added.
HCCH encourages research on digital tokens, including a global definition and layout of tokens that should be included under this umbrella. Some areas to consider include real estate tokens, non-fungible tokens (NFTs), payment tokens, stablecoins, and utility tokens. This study excludes securities, carbon credits, and central bank digital currencies (CBDCs) as there are other studies available.
HCCH proposes that member states nominate subject matter experts from their jurisdictions to contribute to the research and provide a report at next year’s steering committee meeting.
While HCCH operates within a global framework, individual countries are working to establish tokenization regulations as the industry grows rapidly.
This week, the Managing Director of the Monetary Authority of Singapore (MAS) said it was considering tokenization regulation as a top priority.
“MAS is working with pilot managers on the legal and regulatory treatment and implications of tokenized investment funds,” Chia Der Jiun told attendees at an industry event.
Hong Kong recently released standards for tokenized financial products as it pursues its goal of becoming a global tokenization hub.
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