AFM and DNB call for clear legal framework for tokenisation
The Dutch legal framework currently provides no basis for securities that are issued, held and transferred exclusively as tokens. The Netherlands consequently risks falling behind in the development of digital financial markets and future financial market infrastructures. This is the conclusion reached by the Dutch Authority for the Financial Markets (AFM) and the Dutch Central Bank (DNB) in a joint exploratory study of the tokenisation of securities in the Netherlands.
Securities tokenisation is evolving internationally from technical experimentation to practical use. Financial institutions, market infrastructures and central banks are increasingly investing in applications based on distributed ledger technology (DLT), on which financial assets can be recorded, held and traded digitally. Several European countries have already introduced legal measures to facilitate this development.
The exploratory study shows that the current legal framework in the Netherlands does not yet provide a basis for securities that are issued, held and transferred exclusively as tokens. That means so-called native tokenisation is currently not possible under existing Dutch legislation.
Although European and Dutch law do not preclude the use of DLT, in practice this often means market participants have to rely on hybrid arrangements in which traditional records are maintained alongside a DLT-based system. This dual registration limits the potential efficiency gains of tokenisation and may lead to uncertainty regarding the legal significance of the token record. As a result, innovative applications are less likely to be developed and there is a risk that investments, activities and future infrastructure decisions will shift to countries that have moved earlier to provide legal clarity.
The AFM and DNB therefore call for a timely joint follow-up process involving the government, supervisors and market participants to ensure that Dutch efforts are aligned with European initiatives from an early stage and to prevent market practices and infrastructure choices from being consolidated elsewhere. Specific use cases can serve as a basis for determining whether it is sufficient to clarify existing regulations or whether laws and regulations need to be amended.
Sufficient legal certainty is essential to prevent the Netherlands falling behind in the fast-growing European market for digital securities and the development of new financial market infrastructures. It is therefore important to act promptly to establish a future-proof legal framework that supports innovation, competitiveness and a well-functioning financial market.
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