Tokenisation is not ‘free pass’ into the EU market

Robinhood’s latest “stock tokens” offering has raised questions over how they comply with EU regulatory obligations, such as the Markets in Financial Instruments Directive (MiFID II) and the Markets in Crypto-Assets Regulation (MiCA).

One regulatory expert has warned that tokenisation — the replacement of assets with tokens on a blockchain — is not a free pass into the EU market. According to Michael Thomas, a partner in the financial services team at law firm Hogan Lovells, whether the tokens are allowed to “pass” heavily depends on their actual structure.

“Whenever we analyse these kinds of products, the first step is to figure out what the token actually is. People often say they’ve ‘tokenised’ something, but that alone doesn’t tell you much,” he told Compliance Corylated.

“Just because something is tradable on a blockchain doesn’t automatically define its legal or regulatory status. What really matters is what holding that token gives the investor — what rights or interests it represents.”

Tokens or tokenised

For example, Robinhood launched “stock tokens” of US private companies — including OpenAI and SpaceX — in its EU application on June 30.

The neo-broker is authorised in the EU under the Lithuanian regime. While the Bank of Lithuania (BoL) said it is still “assessing the legality and compliance” of the product, Thomas believes that its “financial nature” is the key to understanding what regulatory boundaries apply.

“It doesn’t really matter what they call it — what matters is what it actually is,” he said. “You can call something a ‘tokenised stock’ but that raises the key question: is it actually a share or is it some other type of financial instrument?”

Why the EU market?

On its website, Robinhood stated it is “indirectly holding OpenAI shares through a special purpose vehicle (SPV) on its tokenised stock platform [through which] investors can invest in the OpenAI stake held by this SPV via tokenised stocks.”

In particular, the neo-broker claimed its stock tokens are compliant with MiFID II regulations, which cover a wide range of financial instruments, from equities to currencies.

Hogan Lovell’s Thomas said: “There’s no specific restriction in the EU against setting up something like an SPV and issuing interests in it — as long as you’re clear and transparent about what you’re offering and comply with relevant regulatory requirements. That kind of structure is generally permissible under EU law, provided matters such as the relevant disclosures and regulatory classifications are properly handled.”

He noted that, in the US, the Securities and Exchange Commission (SEC) tends to have a “broader” approach to securities, meaning the stock tokens could be subject to more complex regulations, especially if the product is “being sold to US investors or promoted using US infrastructure”.

Beyond equities

Tokenisation is not limited to financial instruments in traditional finance (TradFi), and at Robinhoodʼs June 30 launch event, CEO Vlad Tenev said he plans to tokenise “other real-world assets” in the upcoming projects. According to a report by the World Economic Forum, the use cases of tokenisation can extend into real estate, carbon credits and other asset classes.

However, despite this, Thomas stressed that the regulatory boundaries again come down to the specific product offering. “If the token simply represents an interest in, say, a bottle of wine, and can be redeemed for that wine, then it’s generally not considered a financial instrument. It’s more like a voucher or a certificate,” he said.