IFSCA has released a consultation paper outlining its regulatory approach toward the tokenization of real-world assets in GIFT IFSC. Tokenization, which involves converting assets such as securities, payments, commodities, and real estate into digital tokens, is gaining traction in financial services. It enables enhanced liquidity, efficiency, and security in transactions. Recognizing its potential, IFSCA formed an Expert Committee in 2023 to explore its impact and regulatory considerations. The committee examined global practices and engaged with industry stakeholders to assess challenges and opportunities. The consultation paper highlights key regulatory concerns, including settlement cycles, interoperability, and risk management. It invites feedback from market participants, experts, and stakeholders to shape a proportional and effective regulatory framework.
International Financial Services Centres Authority
REGULATORY APPROACH TOWARDS TOKEN IZATION OF REAL-WORLD ASSETS
Consultation Paper
February 26, 2025
Introduction
Background
The Government of India set up India’s maiden International Financial Services Centre (IFSC) in GIFT City, Gujarat (GIFT IFSC) with the aim of making India a global leader in the realm of international financial services. Subsequently, the International Financial Services Centres Authority Act, 2019 1 was enacted, leading to the creation of the International Financial Services Centres Authority (IFSCA), the unified regulator for GIFT IFSC. IFSCA has been entrusted with the development and regulation of financial products, financial services and financial institutions in the IFSCs in India, cutting across the realms of banking, capital markets, asset management, insurance and more.
IFSCA is committed to providing a comprehensive and consistent regulatory framework that is based on global best practices for the holistic development of the financial and technological ecosystem in GIFT IFSC. In order to fulfil this commitment, IFSCA has adopted a consultative approach, gathering opinions and feedback from industry participants, academicians, subject experts and other stakeholders, in an open and collaborative manner. Such an approach garners greater significance, given the fast-paced innovation being seen in certain pockets of international finance.
One such emerging idea, with immense importance for the international financial landscape is tokenization. IFSCA recognizes and acknowledges the transformative potential of tokenization in the fields of asset ownership, asset management, cross-border payments and settlement etc. IFSCA wishes to leverage the unique position of GIFT IFSC and its accompanying advantages for the creation of a thriving digital asset ecosystem in GIFT IFSC.
Tokenization is already starting to transform how financial services operate. Banks, asset managers, lenders, payment providers and even corporate treasurers and finance departments are tokenizing a broad array of real-world assets, from bank deposits to securities, commodities to documentation. Some banks have even been building the blockchain technology stack in-house with an eye to further tokenization initiatives, such as collateral settlement, multiparty trade finance, interbank cash settlements and more. Many high-value projects result from collaboration between digital natives offering innovative tech solutions and established financial institutions equipped with capital, scalability, an attractive user experience and rigorous risk management.2
Smart contracts and automated processes in different areas could propel estimated annual global infrastructure operational cost savings of ~$15-20 billion. The need for shortened settlement cycles – which improve liquidity, enhance market efficiency and lower systemic risk – and the demand for 24/7 market operations will require a new infrastructural backbone. Today’s financial systems use different technologies and lack the atomic network connectivity of blockchain networks, thereby creating technology silos that create friction when processing of transactions. Furthermore, by using distributed ledger technology for collateral management, financial institutions can free up substantial capital estimated at more than $100 billion annually.3
Tokenization could also enhance banks’ origination and distribution of trade finance and make them more capital efficient, and benefits can be passed on to their client companies. Tokenisation can make the trade finance instruments, or even cash payment instruments smarter and can bring transparency and traceability that are inherited benefits of the blockchain technology. Companies engaged in trade tokenization could extend the benefits of supply chain finance across suppliers or cut risks by using tokenized bills of lading and tokenized deposits.4
IFSCA constituted the Expert Committee on Asset Tokenization5 (the Committee) in September 2023, with the objective of recommending measures for the development of a digital asset ecosystem in GIFT IFSC. The Committee, inter-alia, comprised of eminent experts from the domains of computer science, capital markets, securities law, and seasoned officers with rich regulatory experience.
The Committee, leveraging the immense knowledge and deep expertise of its members, carried out detailed deliberations on various aspects of the tokenization space. As part of its efforts, the Committee has interacted with market participants and gleaned relevant insights from these interactions. The Committee has also carefully considered the regulatory developments in other relevant jurisdictions and noted emerging trends in the tokenization space. The Committee’s experience and valuable observations/ suggestions have enriched IFSCA and enabled the publishing of this consultation paper.
Objective
The objective of this consultation paper is to elucidate the viewpoint of IFSCA on the need, approach and suitable measures to be adopted for the regulation of tokenization of certain real world assets, including financial securities such as funds6, bonds7, stocks, etc., financial products such as payments 8, deposits 9, bills receivables 10, precious metal bullion 11 , commodities, intellectual property 12 and commercial real estate 13 . Simultaneously, IFSCA wishes to put forth the regulatory hurdles and challenges identified by it and by the Expert Committee on Asset Tokenization, to the wider audience of relevant stakeholders and domain experts, in order to identify proportional, reasoned and acceptable means of tackling these challenges.
This is being done in keeping with the collaborative and consultative approach to regulation adopted by IFSCA, with the aim of formulating an appropriate legal and regulatory response to the emerging domain of tokenization of real-world assets.
Invitation to Comment
IFSCA, by way of this consultation paper, hereby seeks comments/ views from various market participants, academicians, domain experts and other public stakeholders on certain questions pertaining to the subject of tokenization of real-world assets.
IFSCA’s approach and regulatory concerns pertaining to tokenization of real-world assets are laid out in the upcoming parts of this consultation paper. The views are interspersed with relevant questions (demarcated in coloured boxes), as and where appropriate. The consolidated list of questions emerging from the consultation paper may be found at Annexure I of this document.
Notes:
1 Act No. 50 of 2019. The Act is available on IFSCA’s website here
2 PwC – Tokenization in financial services: Delivering value and transformation: https://www.pwc.com/us/en/tech-effect/emerging-tech/tokenization-in-financial-services.html
3 WEF: How tokenization is transforming global finance and investment: https://www.weforum.org/stories/2024/12/tokenization-blockchain-assets-finance/
4 Asian Banking & Finance: Tokenization of trade assets to bridge financing gap (2024): https://asianbankingandfinance.net/banking-technology/exclusive/tokenization-trade-assets-bridge-financing-gap
5 The list of members as well as terms of reference of the Expert Committee on Asset Tokenization can be found at https://ifsca.gov.in/IFSCACommittees
6 BCG: Tokenized Funds: The Third Revolution in Asset Management Decoded (2024): https://www.bcg.com/press/29october2024-tokenized-funds-the-third-revolution-in-asset-management-decoded
7 HKMA – An Assessment on the benefits of Bond Tokenisation (2023) – https://www.hkma.gov.hk/media/eng/publication-and-research/research/research- memorandums/2023/RM04-2023.pdf
8 RBA: Tokenisation of Card Payments (2023): https://www.rba.gov.au/publications/consultations/202306-issues-paper-australian-debit-card-market/conclusions-paper/tokenisation-of-card-payments.html
9 KPMG: Deposit Tokens: Bridging traditional banking and the digital economy: https://kpmg.com/xx/en/our-insights/value-creation/deposit-tokens-bridging-traditional-banking-and-the-digital-economy.html
10 Andrea Frosinini (2024): https://medium.com/@tradefin101/invoice-tokenization-unlocking-the-potential-of-deep-tier-supply-chain-finance-9c407112526b
11 HSBC tokenises Gold: https://www.ledgerinsights.com/hsbc-tokenizes-gold/
12 Tokenisation of Intellectual Property: https://ripl.law.uic.edu/news-stories/tokenizing-ip-how-david-bowie-and-blockchain-set-the-stage-for-creating-a-digital-exchange-for-intellectual-property-assets/
13 Terazo and Tokeny Join Forces for India’s First Regulated Tokenization Project: https://tokeny.com/terazo-and-tokeny-join-forces-for-indias-first-regulated-tokenization-project/
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