Asset tokenisation is no longer optional for financial institutions

IN TODAY’S global economy, increasingly outdated infrastructure continues to hamper the movement of capital and financial assets across borders, even as financial technology advances relentlessly. This inefficiency remains a central challenge that limits the optimisation of real economic benefits and slowing progress towards a more inclusive financial system.

Demographic shifts are reshaping investment priorities, driving demand for higher-yielding assets, but a question is what new asset classes can be made practically accessible. Technology has already revolutionised finance, from mobile banking to artificial intelligence (AI), enabling inclusion and transforming customer experiences.

Now, tokenisation promises to unlock new frontiers including tokenised money market funds and fractional access to private market assets long reserved for institutions, offering retail investors the possibilities of diversified, long-term opportunities. Global asset managers are pioneering this change, and those in Asia are facing an inflection point in navigating non-harmonised regulations and operational complexities to build compliant scalable frameworks.

New success will hinge on harmonised rules and scalable infrastructure to create pathways for digital assets to complement traditional markets and deliver broader participation in wealth creation.

Asset tokenisation: A strategic solution

Blockchain-based tokenised assets offer a compelling answer. By enabling fractional ownership of assets such as securities, traditional private equity and real estate, tokenisation lowers barriers to entry and can increase liquidity participation. Blockchain’s transparent, immutable ledger boosts investor confidence and drives efficiency in settlement times and costs, for example, when paired with stablecoins.

For fund managers, tokenised assets and funds can unlock new investor segments and previously inaccessible assets, increasing market reach.

Token markets are also not necessarily constrained by traditional market hours or geographic settlement systems, allowing for the possibility for round-the-clock markets and global investor access, at reduced costs.

But what will it take to unlock the full potential of asset tokenisation?

Rising to the regulatory challenge

Legacy systems and regulations need to keep pace with digital transformation and new investment needs. This requires comprehensive upgrades and active collaboration among regulators, asset owners and managers, and technology platforms. Regulatory clarity, especially around digital property rights, money movements, cross-border rules and on-chain records, is critical.

To unlock the full potential of asset tokenisation, regulators and industry leaders must:

• Collaborate to recognise new use cases, and needs for interoperable standards and shared governance;
• Prioritise clarity for digital property rights, accounting and cross-border rules including taxation; and
• Support pilot projects and frameworks that build trust and best practices.

International cooperation and strong investor protection will drive tokenisation at scale and build industry trust. In the Asia-Pacific, regulatory nuances add complexity, but initiatives such as Singapore’s Project Guardian are setting benchmarks and building confidence.

Globally, organisations such as the Organisation for Economic Co-operation and Development and CFA Institute are advocating for harmonised frameworks, while the European Union, Switzerland, and the US advance digital asset regulation. The Asean+3 Digital Bond Market Forum deliberates cross-border access.

Without cross-border regulatory alignments, the sector risks suboptimal market size which could fragment progress, threaten growth and investor trust. It can also hold back investors’ financial and pension management.

The key question for stakeholders, then, is how to integrate and scale these technologies while being regulatory compliant to remain competitive.

Practical considerations for asset owners and managers

Asset managers should identify where blockchain and AI can deliver the greatest impacts, for example in automating compliance, streamlining onboarding, and improving access to investment assets. Ongoing evaluation of cost-effectiveness, risks management, infrastructure needs and readiness will be crucial as new revenue opportunities emerge from fractional products.

Strategic imperatives for asset managers and service providers include:

• Piloting small, measurable tokenised projects in regulatory sandboxes to limit risk;
• Integrating legal and compliance strategies early to avoid costly revisions;
• Understanding new risk drivers; and
• Collaborating with Web3 innovators and regulators to drive agile digital innovation.

Pioneers will set the pace

The regulatory environment around tokenisation is changing rapidly. Asset managers can either remain stagnant amid fragmented rules or drive innovation to link traditional and digital finance, creating a more efficient and inclusive system.

Quick, strategic action will benefit those who embrace developing tokenisation frameworks, shaping whether tokenisation faces limitations or ushers in a resilient, integrated financial future. Today’s decisions by asset managers and institutions will define the path forward.

Stephanie Magnus is principal and head of financial services regulatory and fintech at Baker McKenzie Wong & Leow. Chan Boon-Hiong is Asia-Pacific head of securities & technology advocacy and industry applied innovation lead at Deutsche Bank Singapore.