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“Tokenized securities are still securities.” That was the reminder delivered earlier this year by SEC Commissioner Hester Peirce. For RIAs operating under the Advisers Act, the implication is equally direct. Access persons’ holdings and transactions in tokenized securities must be reported under the firm’s Code of Ethics.
Yet, with tokenization gaining momentum, many firms have not adjusted their compliance programs to capture this reality, leaving gaps that regulators are unlikely to overlook.
From concept to marketplace
Tokenization refers to issuing securities as blockchain-based tokens, allowing ownership to be recorded and transferred on distributed ledgers. Advocates often highlight benefits such as faster settlement, fractional ownership, and the theoretical ability to build compliance restrictions directly into smart contracts.
From a compliance perspective, these same innovations present new monitoring challenges. Existing systems like ComplySci and MyComplianceOffice are not designed to capture wallet activity or on-chain transfers, meaning tokenized securities can slip outside established reporting frameworks. What matters most for advisers is not the promise of the technology, but the reality that securities are already being tokenized and traded today.
On Ethereum, platforms like Ondo Finance have introduced tokenized Treasuries and equity products. eToro has announced plans to tokenize U.S. stocks as ERC-20 tokens, enabling investors to hold and transfer equities on-chain. On Solana, Galaxy Digital recently placed its shares on the blockchain through Superstate’s Opening Bell platform, bringing real corporate equity into tokenized form. And perhaps most significantly, Nasdaq has recently filed with the SEC to amend Nasdaq’s rules so that investors and member firms can trade certain equity securities and exchange-traded products in either traditional form or tokenized form. Together, these developments confirm that tokenization has moved well beyond theory and into an operational reality.
Why tokenized securities must be reported
The Advisers Act requires access persons to submit an initial holdings report within ten days of hire, update those holdings annually, and provide quarterly transaction reports. The definition of a “reportable security” is intentionally broad, encompassing virtually all securities products. Commissioner Peirce’s reminder makes it clear that tokenization does not carve out an exception to these obligations.
For compliance purposes, a tokenized security is no different from its traditional counterpart. If an access person holds such a security, it must be disclosed in the same way as a conventional share. Likewise, any transaction (whether executed through a brokerage account or conducted directly on-chain) falls within the quarterly reporting requirement. In short, RIAs cannot afford to ignore tokenization simply because it is new.
The compliance gaps emerging
Despite the clarity of the law, tokenization introduces practical challenges that most compliance programs are not yet built to handle.
One concern is undisclosed wallets. Employees may not realize that a MetaMask, Ledger, or mobile wallet capable of holding tokenized securities qualifies as a “covered account.” Unless Codes of Ethics spell this out, such wallets may easily be omitted from initial and annual holdings reports.
Even when employees recognize their reporting duty, compliance systems struggle to keep up. Platforms like ComplySci or MyComplianceOffice are designed for equities, funds, and options. They are not connected to blockchain explorers, which means wallet transactions are invisible unless employees enter them manually. The lack of CUSIPs or ISINs adds to the difficulty, as tokenized securities are identified by contract addresses instead of conventional identifiers.
Finally, tokenization can create transaction types that slip through cracks. Smart contracts can be designed to automatically distribute dividends, process redemptions, or even reinvest proceeds. From a legal standpoint, each of these events represents a transaction in securities, but without a traditional brokerage statement, they may never appear in quarterly reports. Offshore platforms raise similar risks: an access person trading tokenized securities through a non-U.S. venue may mistakenly believe the activity is exempt from reporting, when in fact it is not.
Steps RIAs should take now
Closing these gaps doesn’t require reinventing compliance programs, but it does require deliberate updates. Codes of Ethics should be revised to state explicitly that tokenized securities are reportable securities and that blockchain wallets qualify as covered accounts. Onboarding and annual certifications should be expanded to capture wallet addresses, and quarterly reporting templates should be adjusted to include fields for wallet transactions and contract addresses.
Education is also essential. Advisers should provide training so employees understand that tokenized equities are still securities, regardless of form. Without that awareness, compliance lapses are inevitable. In the absence of automated system integrations, firms can require employees to provide transaction records directly from blockchain explorers such as Etherscan or Solscan. While less seamless than traditional brokerage feeds, this approach aligns with the recordkeeping requirements under Rule 204-2 and creates a defensible compliance trail in the event of regulatory review.
Preparing for a tokenized future
Nasdaq’s filing with the SEC is a powerful signal that tokenization is moving into mainstream market infrastructure. As tokenized securities begin trading through regulated exchanges, adoption will only accelerate. The compliance risks will be about execution, and whether firms have adapted their reporting processes to a new market structure.
Commissioner Peirce’s words are a useful reminder: tokenization may be enchanting, but it is not magical. Securities remain securities, and the Advisers Act continues to apply. For RIAs, the time to close the reporting gaps is now.
How can Ocorian help you prepare for tokenized securities?
Our US Regulatory and Compliance Team is already advising RIAs on the practical challenges posed by tokenized securities. From updating Codes of Ethics to capture wallet activity, to designing reporting templates that accommodate on-chain transactions, we help firms close compliance gaps before they become regulatory findings.
Get in touch with us if you would like support reviewing your Code of Ethics or enhancing your employee reporting framework around tokenized securities.
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