Tokenized Securities and Regulatory Arbitrage: Strategic Jurisdictional Shifts in Digital Finance and Their Implications for Institutional Investors

The rise of tokenized securities has created a new frontier in digital finance, where institutional investors are increasingly leveraging regulatory arbitrage to optimize returns and reduce compliance costs. As blockchain technology redefines asset ownership and transfer, the fragmented global regulatory landscape has become both a challenge and an opportunity. This article examines how institutional investors are strategically navigating jurisdictional shifts in tokenized securities, with a focus on the United States, European Union, Switzerland, and Singapore, and the implications for market stability and innovation.

The U.S. Approach: Caution Amid Innovation

The U.S. Securities and Exchange Commission (SEC) has adopted a dual strategy of modernization and caution. In 2025, the SEC convened a public roundtable on tokenization, emphasizing the need to align blockchain technology with existing securities laws while fostering innovationSEC Roundtable on Tokenization: Technology – Moving Assets Onchain: Where TradFi and DeFi Meet^[1]. Chairman Paul Atkins outlined a vision for a "rational regulatory framework" that streamlines rules for custody, trading, and issuance of tokenized assetsSEC Roundtable on Tokenization: Technology – Moving Assets Onchain: Where TradFi and DeFi Meet^[1]. However, the SEC has also clarified that tokenized securities remain subject to federal securities laws, including disclosure requirementsEnchanting, but Not Magical: A Statement on the Tokenization of Securities^[2]. This stance reinforces the view that tokenization is a technological evolution rather than a legal revolution, creating a cautious environment where institutional investors must balance compliance with efficiency.

EU's MiCA and MiFID II: A Dual Regulatory Framework

The European Union's Markets in Crypto-Assets (MiCA) regulation has emerged as a strategic tool for institutional investors seeking to bypass the more stringent MiFID II regime for traditional securities. For example, fintech platforms like Robinhood have issued tokenized versions of U.S. equities to European investors under MiCA, avoiding the cross-border compliance burdens of MiFID IIFinancial Technology and Regulatory Workarounds: The Rise of …^[3]. This approach allows firms to operate under a single EU license while sidestepping member-state-specific securities lawsFinancial Technology and Regulatory Workarounds: The Rise of …^[3]. Similarly, exchanges such as Kraken and Gemini have tokenized U.S. stocks and distributed them via Swiss or EU-based platforms, exploiting lighter regulatory oversightFinancial Technology and Regulatory Workarounds: The Rise of …^[3]. However, this strategy carries risks, as regulators may retroactively classify these tokens as securities, triggering compliance obligationsFinancial Technology and Regulatory Workarounds: The Rise of …^[3].

Switzerland's DLT Act: Efficiency with Investor Protection

Switzerland has positioned itself as a crypto-friendly jurisdiction through its Federal Act on the Adaption of Federal Law to Developments in the Distributed Ledger Technology (DLT Act), enacted in 2021. The Swiss Financial Market Supervisory Authority (FINMA) classifies asset tokens—representing shares, debts, or financial claims—as equivalent to traditional securities, subjecting them to the same regulatory standardsThe Tokenization Revolution in Switzerland: Its Legal Framework^[4]. The introduction of the "register uncertificated security" framework allows token transfers via blockchain-based ledgers without traditional intermediaries, reducing costs while maintaining investor protectionThe Tokenization Revolution in Switzerland: Its Legal Framework^[4]. Additionally, Switzerland's fintech license, introduced in 2018, enables smaller entities to participate in digital finance, fostering innovation without compromising stabilityThe Tokenization Revolution in Switzerland: Its Legal Framework^[4].

Singapore's 2025 Regulations: Strict Licensing and Global Reach

Singapore's Monetary Authority of Singapore (MAS) has finalized the Financial Services and Markets (Digital Token Service Providers) Regulations 2025, imposing strict licensing requirements on digital token service providers (DTSPs). Under these rules, DTSPs must hold a minimum base capital of S$250,000 and appoint a Singapore-based compliance officer, with licenses granted only in "extremely limited circumstances"MAS Finalises and Clarifies Regulatory Regime for Digital Token Service Providers^[5]. The regime also extends extraterritorially, ensuring compliance regardless of customer locationMAS Finalises and Clarifies Regulatory Regime for Digital Token Service Providers^[5]. While this creates a secure environment for tokenized securities, it also raises the bar for entry, pushing firms toward jurisdictions with more flexible frameworks.

Strategic Jurisdictional Shifts: Opportunities and Risks

Institutional investors are increasingly choosing jurisdictions like Singapore, Dubai, and the UK—where regulatory sandboxes and digital asset-friendly policies exist—to optimize tokenized securities offeringsFinancial Technology and Regulatory Workarounds: The Rise of …^[3]. For instance, tokenized equities structured as crypto tokens under MiCA can bypass U.S. securities registration requirementsFinancial Technology and Regulatory Workarounds: The Rise of …^[3]. However, this arbitrage is not without pitfalls. Regulatory overlap, enforcement inconsistencies, and high compliance costs persist, creating a fragmented landscape that complicates cross-border operationsFinancial Technology and Regulatory Workarounds: The Rise of …^[3].

Conclusion: Toward a Unified Framework?

The strategic exploitation of regulatory arbitrage in tokenized securities highlights both the opportunities and risks of a fragmented global framework. While jurisdictions like Switzerland and Singapore offer efficiency and innovation-friendly environments, the lack of harmonization increases legal uncertainties and operational complexity. As institutional investors continue to navigate this landscape, the pressure for global alignment in definitions and standards will intensify. Until then, the race for regulatory advantage will remain a defining feature of digital finance.