You probably own traditional funds, whether ETF’s, LPs, or simple mutual funds.
You might even own a “digital asset” fund investing in cryptocurrencies and utility tokens.
I bet you do NOT own a digital shares of traditional asset fund. The legal issues are tricky, and the first digitized funds are just hitting the market now.
All securities laws / regs apply to the assets under management and also to subscriptions / redemptions / transfers of fund shares with prospective investors.
There are also the Fintech legal issues:
- Attaching the digital tokens to the rights & obligations of the underlying traditional entities/assets legally
- Addressing legal questions around how (whether?) token-based shares can be supported by custodians, brokers, and counterparties
- Enforcing regulatory requirements, such as lockup periods, whitelists, identity verification
- Getting the product “on the shelf” so licensed dealers are permitted to solicit “suitable” investors
- Complying with incremental regulatory guidance covering cybersecurity and outsourcing risks of digital assets
- Defining the limits/constraints of token possession with investor life events (death, divorce decree)
- Logistics of ongoing compliance, corporate formalities & transaction taxation & reporting
There has been a lot of good work by knowledgeable professionals recommending what lawmakers and regulators should do to support development of “tokenised securities” and digital funds.
Of course there is a huge difference between“Should” and “Did”. A tiny number of pioneering firms already did launch tokenized funds in a handful of jurisdictions. Some regulators already did issue guidance around digital asset funds. There may be “tokenized traditional asset fund” guidance to follow.
Stay tuned more “tokenized funds” coming to market in the next few quarters.
You might not hear about these funds… Some regulators prohibit publicity around funds that are not authorized for the general public (i.e., accredited investors only).
DISCLAIMERS:
- This is NOT legal advice.
- This is NOT marketing or solicitation.
- This is NOT investment advice.
- The world is complicated. Securities law is complicated.
- Blockchain & Fintech laws are changing rapidly.
- There is no magic low-risk, high-return “right” approach to asset management. However there are a great many “wrong” ways to do it. Good luck figuring out which is which.
- I hereby disclaim any responsibility for anything you think or do after reading this content. Hire licensed professionals to get advice.