US lawmakers hash out tokenized securities concerns in latest hearing

Industry executives told US lawmakers that existing investor protection and financial surveillance regulations should apply to tokenized securities.

Crypto industry executives on Wednesday told the US House of Representatives Committee on Financial Services that existing investor protections and financial surveillance regulations should apply to tokenized securities.

The hearing was held as legislators consider the Capital Markets Technology Modernization Act of 2026 and are exploring the impact of asset tokenization on capital markets and the “need to balance innovation with investor protection and market integrity,” according to a statement by panel chairman, Representative French Hill.

Tokenized real-world assets (RWA), traditional financial instruments represented by tokens on blockchain networks, reduce transaction costs and settlement times, Summer Mersinger, CEO of crypto advocacy organization Blockchain Association, told the committee.

“By replacing flawed manual record-keeping processes with more transparent timestamps and stamped records, tokenization lowers the cost and re-imagines US financial markets,” she said.  

Mersinger and the other witnesses agreed that existing securities laws apply to tokenized instruments, arguing that the technology and the medium used to record securities transactions do not fundamentally alter investor protection laws or jurisdictional oversight.

Supporters of RWA tokenization contend the technology removes intermediaries from the settlement and clearing process, reducing transaction costs and improving capital velocity by introducing near-instant settlement times. 

Lawmakers questioned the panel about how tokenized asset issuers and platforms could enforce know-your-customer (KYC) checks, anti-money laundering provisions, and sanctions compliance.

Illinois Representative Bill Foster asked: “Once things are tokenized, are they going to be treated on a private, permissioned blockchain, or a variety of public blockchains, which often allow anonymous participation through self-hosted wallets?” 

John Zecca, Nasdaq executive vice president and global chief legal, risk, and regulatory officer, told Foster that the exchange can collect KYC information at the protocol level because its system runs on a permissioned blockchain network.

Christian Sabella, managing director and deputy general counsel of the Depository Trust and Clearing Corporation (DTCC), the world’s largest clearinghouse company, said it was also possible to embed identifying information at the token level.

These identifiers would be immutable and would remain regardless of whether the RWA token was trading on a permissioned or a permissionless network, Sabella added. 

Salman Banaei, general counsel for Plume Network, a permissionless RWA-focused blockchain, said the network embeds anti-money laundering (AML) and sanctions compliance checks at the token level, which allows tokens to be frozen.

However, Banaei told Foster that government regulators do not yet have a technological solution to identify wash trades or identify market participants with 100% confidence.

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Source: CoinTelegraph