New Zealand's financial markets watchdog wants to hear from the industry about how tokenization might reshape domestic markets, launching a consultation that could influence future rules for blockchain-based securities.

“Do you think the current law helps or hinders domestic tokenization activity, and why?”. This is one of the questions posed to industry representatives regarding the growing trend among businesses and investors to move assets onto the chain, ranging from stocks and precious metals to real estate.

New Zealand Regulator Opens Consultation on Digital Asset Tokenisation Rules

The Financial Markets Authority (FMA) released a discussion paper asking market participants to weigh in on opportunities and barriers for tokenized products. The regulator is particularly interested in whether existing laws help or hinder companies looking to offer digital versions of traditional investments.

"The pace of technological development is rapid and tokenization Tokenization Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value. In essence, the rights to the ownership of an asset are converted into a digital token. Tokenization can be used to own an entire unit of an asset. For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one represen Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value. In essence, the rights to the ownership of an asset are converted into a digital token. Tokenization can be used to own an entire unit of an asset. For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one represen Read this Term, like other emerging technologies, has the potential to influence the development of New Zealand financial services," said FMA General Counsel Liam Mason.

The consultation comes as several businesses have approached the FMA this year about tokenization projects spanning industries from mining and forestry to real estate and carbon credits. Despite growing interest, the regulator notes that few firms have actually launched tokenized investment products for consumers.

In other economies, tokenization is advancing rapidly, with Robinhood serving as a prime example. The company is putting strong emphasis on tokenized stocks. Vlad Tenev, the company’s CEO, called tokenization “the biggest innovation in capital markets in well over a decade.”

New Products, Old Laws

Tokenization involves creating digital representations of assets on blockchain networks. Examples overseas include tokenized bonds, real estate fractions, and managed fund units that can trade around the clock on digital platforms.

New Zealand's technology-neutral financial laws theoretically cover these products, but the FMA acknowledges the fit isn't always clear. The regulator can grant exemptions or designations to tailor rules for new business models, though this process creates uncertainty for startups.

Current rules create some odd gaps. Virtual asset trading platforms that hold client funds face fewer protections than traditional share trading platforms, since most cryptocurrencies don't qualify as "financial advice products" under existing definitions.

Projections for real-world asset (RWA) tokenization are significant, with estimates pointing to an expansion from $0.6 trillion in 2025 to $18.9 trillion by 2033. Even a small share of global equity trading being transferred to tokenized platforms could translate into substantial market volumes.

Looking for “Balance” Between Innovation and Protection

The FMA’s approach to tokenized assets appears bittersweet. Potential benefits include 24/7 trading, faster settlement, lower costs, and access to previously illiquid asset classes. But the technology also introduces new risks around custody, smart contract Smart Contract A smart contract is a piece of software that automatically executes a pre-determined set of actions when a certain set of criteria or met. One of the key tenets of smart contracts is their ability to perform credible transactions without third parties and are self-executing, with their conditions written into the lines of code that form themAdditionally, these transactions are both trackable and irreversible. For example, a smart contract could be used to give royalty payouts to a musical artist A smart contract is a piece of software that automatically executes a pre-determined set of actions when a certain set of criteria or met. One of the key tenets of smart contracts is their ability to perform credible transactions without third parties and are self-executing, with their conditions written into the lines of code that form themAdditionally, these transactions are both trackable and irreversible. For example, a smart contract could be used to give royalty payouts to a musical artist Read this Term vulnerabilities, and regulatory uncertainty.

"We have to balance ways to better support innovation and reduce regulatory barriers for companies and innovative products, while, at the same time, protecting consumers from harm," Mason said.

The consultation reveals growing concern about virtual asset-related harm. In the first quarter of 2025, roughly 30% of misconduct allegations reported to the FMA involved virtual assets. The regulator points to past failures like Cryptopia's 2019 collapse and Dasset's liquidation in 2023 as examples of consumer risks.

New Zealand Looks to Other Countries

Internationally, jurisdictions are taking varied approaches. Singapore has established comprehensive licensing for digital token service providers, while Hong Kong requires specific licenses for virtual asset trading platforms. The UK and Australia are developing new regimes set to launch in 2026.

As for strictly tokenized assets, the European watchdog ESMA warned earlier this month that they could mislead investors, stressing the need to clearly explain to clients how they differ from actual shares.

The regulator wants feedback on whether New Zealand needs bespoke tokenization rules or if tweaks to existing principles-based frameworks would suffice. Questions also cover operational challenges, consumer protection measures, and cross-border regulatory coordination.

"Having a constructive conversation with industry enables us to respond faster and make adjustments to rules and license conditions and seek law reform where needed," Mason said.

The consultation runs until October 31, with the FMA planning to publish feedback summaries and preliminary responses. Follow-up actions could include guidance documents, licensing pathway clarifications, exemptions, or law reform recommendations to the government.