Selecting the Applicable License(s)
In most jurisdictions, licensing is not required to conduct a Security Token Offering (STO) or to tokenize assets, provided that the issuer complies with securities regulations, adheres to investor eligibility rules, and ensures legal structuring. However, licensing may become necessary depending on the business model, the financial services provided, and the complexity of the tokenization ecosystem.
Issuers offering purely tokenized securities without additional financial services do not typically require a Virtual Asset Service Provider (VASP) or Broker-Dealer license. However, if an issuer facilitates trading, custody, market-making, or blockchain-based financial services, regulatory licensing may apply.
Understanding whether licensing is required helps issuers:
Ensure legal compliance while avoiding unnecessary regulatory burdens.
Define their operational and financial scope.
Establish trust with investors, institutions, and financial service providers.
When Licensing is Required in Tokenization
An issuer may require licensing if they engage in any of the following activities:
Providing Financial Services Related to Tokenized Assets
Managing investment portfolios or offering financial advisory services.
Acting as an intermediary between investors and issuers.
Facilitating secondary market trading beyond issuing their own security tokens.
Operating a Trading Platform, Exchange, or Marketplace
If an issuer provides an exchange-like platform where third parties can trade security tokens.
If security token transactions are executed through an order book or automated market-making system.
Offering Custody or Digital Asset Management Services
If the issuer provides custody solutions for security tokens or other virtual assets.
If the issuer holds investor funds or assets in a managed account.
Developing Blockchain-Based Financial Infrastructure
If an issuer builds an on-chain tokenization protocol that allows third parties to issue or trade security tokens.
If the issuer operates a liquidity pool that third-party investors can participate in.
If the issuer only tokenizes assets and issues security tokens without providing financial services, licensing is generally not required. However, issuers must still comply with securities laws and investor protection regulations.
Types of Licenses and When They May Be Required
Licensing obligations vary by jurisdiction and depend on the nature of the issuer’s activities. Below is a breakdown of the main license categories and when they may be required:
Securities & Investment Management Licenses
These licenses are required when an issuer actively manages investments, provides advisory services, or operates a regulated financial product.
Broker-Dealer License – Required for facilitating security transactions and acting as an intermediary between buyers and sellers.
Investment Advisor License (EU MiFID II / US SEC Registration) – Needed if the issuer provides investment advisory services.
Portfolio Management License – Grants permission to manage investment portfolios on behalf of clients.
Asset Management Company License – Allows issuers to operate pooled investment funds, such as mutual funds or hedge funds.
Alternative Investment Fund Manager (AIFM) License (EU) – Required for managing alternative investment funds under EU financial regulations.
When Required?
If an issuer manages third-party funds or investment portfolios.
If the issuer structures security tokens as investment funds or pooled investment products.
Payment, Money Transmission & E-Money Licenses
These licenses apply when an issuer provides financial transaction processing, digital payments, or money transfer services.
Electronic Money Institution (EMI) License – Allows issuers to create and manage digital financial transactions.
Payment Institution License – Permits businesses to facilitate digital payments and remittance services.
Money Transmitter License – Required in the U.S. and certain jurisdictions for money transmission services.
When Required?
If an issuer provides payment services for tokenized assets beyond security token issuance.
If tokenized securities are traded using an internal payment gateway or fiat-to-token payment system.
Virtual Asset & Crypto-Related Licenses
These licenses apply when an issuer provides custody, trading, or financial services related to virtual assets.
Virtual Asset Service Provider (VASP) License – Required in various jurisdictions (EU, UAE, Hong Kong) for businesses offering services related to crypto assets, custody, and exchanges.
Crypto-Asset Service Provider (CASP) License (EU MiCA) – Required under MiCA regulations for companies issuing, trading, or managing crypto-assets in the European Union.
Crypto Custodian License – Required for companies offering custodial services for tokenized assets and cryptocurrencies.
Crypto Exchange License – Needed to operate a crypto or digital asset exchange that allows security token trading.
When Required?
If an issuer provides crypto exchange, wallet, or custody services for digital assets beyond their own token issuance.
If the security token is structured as a digital asset rather than a traditional security.
Licensing for Secondary Market & Exchange Operations
These licenses are necessary for platforms facilitating secondary market trading, liquidity pools, or investor-to-investor transactions.
Alternative Trading System (ATS) License (US SEC) – Required for platforms facilitating security token trading in the U.S.
Multilateral Trading Facility (MTF) License (EU MiFID II) – Similar to ATS, required for securities exchanges in Europe.
Securities Exchange License – Required if a company operates a centralized security token marketplace.
When Required?
If an issuer provides a marketplace for investors to trade security tokens beyond a single liquidity pool.
If an issuer allows third-party investors to provide liquidity on a DEX (Decentralized Exchange).
No exchange license is needed if the issuer provides security token liquidity only through their own liquidity pool.
Licensing for Funds & Institutional Investments
These licenses are required when an issuer structures security tokens as investment funds or institutional financial products.
Private Fund License – Required to manage private investment funds.
Mutual Fund License – Required for public investment fund offerings.
UCITS License (EU) – Required for operating investment funds under the UCITS framework.
When Required?
If the issuer tokenizes a fund structure rather than a single asset.
If tokenized assets are sold as securitized fund shares.
How to Determine if a License is Required
Step 1: Identify the Business Model
Is the issuer only tokenizing assets without financial services? → No license required.
Does the issuer offer investment advice, custody, or exchange services? → License required.
Step 2: Define Investor & Market Operations
Are security tokens issued under private placement exemptions? → License may not be needed.
Are security tokens publicly traded? → ATS or exchange licensing required.
Step 3: Seek Legal & Regulatory Advice
Consulting a regulatory expert ensures compliance with jurisdictional requirements.
Conclusion: Licensing as a Foundation for Compliance
Licensing requirements vary based on the tokenization model, financial services offered, and jurisdiction. While most STOs do not require a license, issuers must assess whether additional services—such as market-making, exchange operations, custody, or fund management—trigger regulatory licensing obligations.
By obtaining the correct licenses, issuers:
Ensure regulatory compliance and avoid legal risks.
Build investor trust by demonstrating oversight and transparency.
Facilitate banking, exchange listings, and institutional partnerships.
Carefully evaluating licensing requirements before launching a Security Token Offering (STO) ensures a legally compliant, scalable, and investor-friendly tokenized asset.
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