Financial Services Committee Calls for RWA Tokenization Rules
On June 5, the U.S. Financial Services Committee hosted a public hearing titled "Next Generation Infrastructure: How Tokenization of Real-World Assets Will Facilitate Efficient Markets." The event gathered experts including lawyers, representatives from government financial institutions, and private business executives.
Following the discussion of the FIT-21 bill on the classification of digital assets, this event stands as a potentially major turning point for the crypto world.
During the session, it was highlighted that the American capital markets are hindered by elevated operational costs, fragmented liquidity markets, and substantial barriers to entry. Furthermore, the traditional banking sector is losing its competitive edge due to slow transaction speeds and poor compatibility within internal banking registries.
Tokenization automates vital processes, easing computations and cutting costs, thereby benefiting consumers of banking services. Blockchain technology provides transparent ownership records for tokenized assets and minimizes fraud risks.
Some independent experts believe that to fully leverage the capabilities of decentralized ledgers, significant amendments are needed in the Uniform Commercial Code, as well as updates to the rules governing commercial transactions involving digital assets.
Nonetheless, regulatory agencies such as the SEC are remarkably conservative in matters pertaining to the digital economy, stifling innovation.
For instance, every commercial bank must now align any blockchain-related pilot program with federal regulators and secure official authorization to implement forward-thinking solutions.
However, the tokenization of deposits in the private sector should not be contingent upon SEC approval or that of any other regulatory body. How have government officials acquired the authority to control the modernization of private companies' operating systems?
Subcommittee member Stephen Lynch reported that the Boston Consulting Group estimated the global value of tokenized assets could reach 16 trillion dollars by the end of the decade. At the same time, regulators alarm American business leaders with the risks of using blockchain in terms of consumer protection and national financial stability. This is due to the SEC's reluctance to cede its supervisory powers.
Given that blockchain technology can reduce the costs of international transfers by nearly 80%, the position held by Gensler and his colleagues appears indefensible.
Lynch also pointed out that regulators often lack competence and confuse tokenization with cryptocurrencies, treating these terms as synonyms. Therefore, it falls upon policymakers to clearly differentiate these areas in legal terms, addressing ownership and token transfer, combating money laundering, and preserving the confidentiality of consumers in financial services.
Lilya Tessler, a partner and head of Sidley Austin LLP's FinTech and Blockchain group, believes that we are already living in a digital world and should treat decentralized ledgers as standard tools. Consequently, RWA tokenization should and can be applied across all assets, including securities, bank deposits, real estate, and gold. Tokenizing an asset does not alter its fundamental nature or properties, nor does it create a new class of assets. Rather, it simply unlocks possibilities for reducing transaction costs, enhancing liquidity, and ensuring security, assuming smart contracts are used.
The conversation also addressed the underuse of blockchain technology in international logistics. Business representatives affirmed that only a distributed ledger can make supply chains fully transparent, enabling the tracking of goods from the manufacturer to the final consumer.
Following the discussion, participants signed a Memorandum demanding action from the SEC. It asserts that the U.S. House Committee on Financial Services is pressing for an urgent investigation and the eventual implementation of effective regulations for the use of tokenized securities and derivatives.
Additionally, a second legislative proposal was made to the Federal Reserve, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the National Credit Union Administration. It calls for these agencies to collaboratively and swiftly produce a report on the trends in using blockchain technology for RWA tokenization.
