Regulatory Roundup #4

Weekly Summary

Exchanges want fake stock tokens chased off stage and warn investors not to mistake the tokens for real equity. Meanwhile, Trump takes aim at the Fed yet again and the CFTC prepares for temporary life as a one-person show. Elsewhere, Hong Kong, Seoul and Taipei are keeping busy.

🔦 Spotlight

Stock Exchanges vs Tokenised Equities: The Gloves Come Off

The World Federation of Exchanges (WFE) has released a paper with a clear message: tokenisation is welcome, but tokenised copycats pretending to be equities are not. The WFE draws a sharp line between “real” tokenisation, where regulated exchanges modernise existing securities using distributed ledger technology, and what it calls “mimics”, unregulated stock tokens offered by brokers and crypto platforms that only look and sound like shares.

In the view of the WFE, these mimics circumvent vital safeguards and carry a host of risks. They have the potential to fragment liquidity by pulling order flow away from regulated venues, to the detriment of investors. They risk investor protection problems, since token holders often believe they enjoy shareholder rights they simply do not have. And then there are the challenges of custody and enforceability: if the broker issuing these tokens fails, it is not at all clear whether the tokens retain value or who, if anyone, owns the underlying asset.

Aside from the investor risks, the paper highlights the potential headaches for issuers. Companies whose stock is being “replicated” in token form could suffer reputational damage if those tokens implode, or find themselves sucked into legal disputes if token holders mistakenly believe they are entitled to dividends or votes. In short, the mimics pose not only a danger to investors but a boomerang risk for the companies themselves.

Regulatory arbitrage is raised as another key concern. The WFE notes that there have been requests from some brokers for “no action” letters from the SEC to bring these products to market outside the traditional framework, with Coinbase among those reportedly venturing into this space. To borrow the WFE’s phrasing, this appears less like innovation and more like hopping the fence of the regulatory perimeter, with retail investors as the primary target audience. Exchanges are treating these products much as a maître d’ would treat someone trying to sneak a BigMac into a Michelin-starred dining room.

In the letter, the WFE lays out a set of punchy recommendations. Regulators should enforce technological neutrality so that rules apply consistently whether a share exists on paper, in an electronic register, or on a blockchain. They should demand parity in disclosure, clearing and settlement obligations, and IOSCO should coordinate across borders to prevent firms from shopping for the weakest jurisdiction. Legal ambiguities around ownership and custody must be resolved, and above all, marketing rules should prevent anyone from presenting a derivative as if it were the same thing as a listed stock.

Tokenised equities or Frankenstocks?

Tokenised equities come in different flavours - some are backed one-to-one by securities held in custody, others are purely derivative contracts that replicate the price of a stock without conferring any shareholder rights. The WFE’s concern is that these very different products are often marketed under the same label, blurring lines that matter for investors.

At a high level, you can think of them on a spectrum (rather like how far your food is from its natural state):

1. Minimally Processed: These are on-chain securities issued under company or securities law, where the token itself is the legal share or a recognised representation of it. Shareholder rights such as voting and dividends are intact, and trading takes place on regulated infrastructure, including pilots under the EU’s DLT regime. Think of it as cooking with fresh ingredients, just using fancier gadgets in the kitchen.
2. Moderately Processed: Here we move into 1:1-backed tokens, where a provider holds the underlying shares with a custodian and issues tokens that reference them. The investor’s claim is to the programme and its collateral, not directly to the issuer of the stock. Corporate actions are handled contractually, sometimes with dividends passed through, sometimes not. Still recognisable as food, but edging towards ready-meals.
3. Ultra-Processed: Finally, synthetic or derivative tokens mimic a stock’s price via smart contracts or off-chain agreements, with no underlying shares. Holders rely on collateral pools, oracles and counterparties, but enjoy no shareholder rights. This is where much of the regulatory heat lies, since these “mimic” products can be presented as if they were real equities. Think less pantry staples, more neon-packaged snacks.

The practical takeaway for investors is simple: always check whether you’re getting ownership or just exposure, who holds any collateral, how dividends and corporate actions are treated, and which regulator is responsible for oversight. The WFE, with skin in the game and looking to be the Jamie Oliver of capital markets, is pushing to keep the labelling honest and, from its perspective, stop junk food being served up as if it were home-cooked.

🌎 Global Developments

🇺🇸 United States

Trump vs the Fed

Donald Trump has tested the limits of presidential power with a move to oust Federal Reserve Governor Lisa Cook. Reports suggest the White House is exploring legal theories to justify her removal, a step that would mark an unprecedented clash with the central bank’s independence. Cook, appointed by President Biden and the first Black woman to serve on the Fed board, has been a frequent target of Trump’s criticism.

Cook has already signalled she will fight the order in court, setting up a constitutional test of whether a president can dismiss a sitting Fed governor before their term expires. Legal scholars point out that Fed governors are meant to enjoy protection from arbitrary removal, a safeguard designed to preserve monetary policy independence. The case, likely to escalate quickly, will be watched closely by both markets and policymakers: if Trump succeeds, it would fundamentally alter the balance between the White House and the Federal Reserve, and boost Trump’s push to lower rates. While the legal footing appears shaky, the mere attempt has rattled observers who see it as part of Trump’s broader push to bring the Fed to heel.

CFTC in Limbo

Meanwhile, the Commodity Futures Trading Commission is staring at a material staffing problem. Democratic commissioner Kristin Johnson is stepping down next week, which will leave the agency with just one commissioner in place. That effectively paralyses decision-making at the key derivatives regulator, including its oversight of crypto markets. With only a single voice at the table, the CFTC’s ability to enforce, supervise, or even issue new guidance is in doubt. For the crypto industry, it means regulatory clarity from the CFTC is seemingly on pause.

🇬🇧 United Kingdom

State of UK Crypto report

The Crypto Council for Innovation (CCI) and Global Digital Finance (GDF) have released their State of UK Crypto Policy report, painting a mixed picture of Britain’s ambitions as a digital asset hub. The report highlights the UK’s strong base of fintech talent and supportive rhetoric from policymakers, but it also points to patchy regulatory implementation and lingering uncertainty over key areas such as stablecoins and tokenised securities.

The authors argue that the UK risks losing ground to the EU and Singapore unless it accelerates clarity and consistency in its rule-making. They call for closer coordination between the Treasury, FCA and Bank of England, as well as more proactive engagement with industry. While the report strikes an optimistic note about London’s potential to lead, its underlying message is clear: the UK’s crypto moment could slip away without firmer action. (Crypto Council for Innovation)

🇪🇺 European Union

MiCA Authorisations Update (per ESMA CASP Register)

• 🇩🇪 Dietrich & Richter Private Asset Management AG - 18/08/2025
• 🇩🇪 Smartbroker AG – 11/08/2025

🇭🇰 Hong Kong

Tightened custody standards

Hong Kong’s Securities and Futures Commission (SFC) has introduced stricter custody rules for licensed crypto exchanges, raising the bar for how client assets must be safeguarded. The new measures include higher capital requirements, mandatory insurance for digital assets held in custody, and clearer segregation of client and exchange funds.

The SFC framed the changes as part of its commitment to investor protection and market integrity, responding to lessons from recent exchange collapses globally. Licensed platforms will now need to demonstrate more robust operational resilience, with regulators signalling that compliance will be closely monitored.

🇰🇷 South Korea

FSC halts crypto lending

South Korea’s Financial Services Commission (FSC) has ordered a halt to all new crypto lending products, citing mounting concerns over consumer protection and systemic risk. The directive, issued in mid-August, prevents platforms from launching fresh lending offerings while regulators assess the risks of high-yield crypto loans. Existing products may continue for now, but the FSC has warned that further restrictions could follow.

Officials stressed that crypto lending products, often pitched with attractive returns, expose investors to significant counterparty and liquidity risks. The move is part of a broader tightening of South Korea’s digital asset regime, aimed at ensuring providers do not skirt financial stability safeguards. Market participants see it as a sign that the government is preparing to bring crypto credit products under a stricter regulatory framework.

🇹🇼 Taiwan

14 indicted in crypto money laundering case

Taiwanese prosecutors have indicted 14 individuals over an alleged $72 million money laundering scheme tied to crypto transactions, affecting more than 1,500 victims. The group is accused of using digital assets to obscure the movement of illicit funds, with investigators highlighting how platforms were exploited to transfer and disguise proceeds.

Authorities say the case underscores vulnerabilities in crypto markets to organised financial crime and reinforces the need for stricter oversight of exchanges and service providers. The indictment has been framed as part of Taiwan’s broader effort to align its financial crime enforcement with international standards. Officials noted that the victims were spread across multiple jurisdictions, underscoring the cross-border nature of the alleged laundering network.

The prosecutions represent one of Taiwan’s largest crypto-related enforcement actions to date, and regulators are expected to use the case to justify advancing tougher anti-money laundering compliance requirements for digital asset firms operating in the jurisdiction.
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🔍 Things to Watch

Coming into view:

• 🏛️ Post-recess progress on the CLARITY Act.
• 🌐 OECD Crypto-Asset Reporting Framework (CARF) implementation timeline across EU and G20 nations ahead of 2026 start
• 🇬🇧 Further FCA consultations on the UK crypto regime

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