17th November 2025
Mr Tuang Lee Lim
Chair, IOSOC Fintech Task Force
International Organization of Securities Commissions (IOSCO)
C/Oquendo 12
28006 Madrid
Spain
By E-Mail
Subject: Tokenovate’s Comments on IOSCO’s Tokenization of Financial Assets Report (FR/17/25)
Dear Mr Tuang Lee Lim
On behalf of Tokenovate, I would like to thank IOSCO for its insightful and timely report on the Tokenization of Financial Assets (FR/17/25). We commend the IOSCO Fintech Task Force for its rigorous analysis and for its leadership in identifying both the opportunities and the challenges presented by asset tokenisation.
As a UK-based fintech specialising in post-trade innovation, Tokenovate shares IOSCO’s commitment to modernising capital markets infrastructure in a safe, interoperable, and legally robust manner. Our work on the Novat programmable settlement protocol (1) has been guided by precisely the concerns raised in IOSCO’s analysis, particularly in relation to fragmentation, interoperability, and synchronisation between traditional and distributed ledgers. Drawing on this practical experience, we would like to offer the following perspectives on the Report.
Addressing Inefficiencies, Risks, and Fragmentation in Settlement
IOSCO’s report rightly identifies that today’s collateral and securities settlement processes are characterised by complexity, multi-layered reconciliation, and operational fragmentation. These frictions limit the speed with which assets can move across custodial chains, and they contribute to heightened liquidity demands, particularly during periods of market volatility, when delays can amplify stress.
We agree with the Report’s conclusion that many existing tokenisation initiatives have not reduced these risks. Instead, the proliferation of bespoke ledgers and non-interoperable digital representations has, in some cases, created additional fragmentation. Without common data standards, interoperability frameworks, or synchronisation mechanisms between on-chain and off-chain records, tokenised assets can become stranded within isolated ecosystems. In such circumstances, the promise of enhanced liquidity mobility is not realised, and firms continue to rely on traditional rails for final settlement.
Our practical work in developing the Novat protocol has been shaped by these challenges. Novat is designed to reduce fragmentation by tokenising the act of settlement, rather than the underlying security. In this model, a short-lived digital representation of the settlement obligation is created only once a custodian has immobilised the relevant asset. This representation – used solely for the duration of the settlement process – is then extinguished once the custodian or CSD updates the authoritative ledger. This avoids any parallel record of title, prevents the circulation of proxy tokens, and seeks to improve certainty and auditability without altering established market structures.
The Role of CDM-Based Programmability and Shared Standards
The Report rightly emphasises the importance of data standardisation. We strongly support this conclusion. Fragmentation in post-trade infrastructure is not solely technological; it is semantic. Different firms, custodians, and infrastructures often describe the same events in incompatible ways, creating operational divergence that must then be reconciled.
Tokenovate has adopted the FINOS Common Domain Model (CDM) as the foundation for representing financial products, lifecycle events, and settlement instructions. Using a shared model offers three clear benefits that align closely with IOSCO’s analysis:
- Canonical representation of obligations: CDM provides an unambiguous definition of contractual events such as collateral movements, returns, and substitutions. This eliminates discrepancies in how institutions interpret and operationalise contractual terms.
- Standards-based programmability: CDM enables operational steps to be expressed as machine-readable logic derived directly from the underlying contractual provisions and established legal standards. This ensures that automation reflects, rather than alters, the legal rights and obligations agreed between the parties.
- Cross-infrastructure interoperability: Because CDM is open-source and industry-governed, it provides a mechanism for interoperability across custodians, infrastructures, and DLT platforms.
These principles underpin the design of Novat’s programmable settlement protocol, which consolidates business terms from bilateral agreements (e.g., the ISDA Master Agreement), product definitions (e.g., ISDA 2021 Interest Rate Definitions), entity and product identifiers (e.g., LEIs, DTI (2) ) with the operational details required for settlement (e.g., SSIs). This allows on-chain and off-chain lifecycles to be driven by a single, standardised representation.
Importantly, Tokenovate has been collaborating with ISDA and FINOS as part of ongoing work to develop industry-standard logic for programmability (3). As derivatives and collateral management increasingly move toward event-driven automation, we believe this work will form a crucial foundation for safe, consistent adoption of tokenisation across jurisdictions.
Synchronising On-Chain and Off-Chain Records
A central challenge identified by IOSCO is the difficulty of synchronising distributed ledger representations with the authoritative records maintained by custodians and CSDs. Persistent divergence between these records could undermine legal certainty, settlement finality, and the enforceability of rights.
Tokenovate’s experience suggests that synchronisation can be achieved through a hybrid approach that respects the central role of custodial infrastructures. In the Novat framework:
- A digital representation is created only after the custodian immobilises the relevant asset.
- On-chain events (mint, transfer, burn) are driven entirely by corresponding off-chain events (immobilisation, transfer instruction, book-entry update).
- The digital representation is extinguished immediately once the custodian updates the authoritative ledger.
This approach ensures that the custodian’s record remains the definitive source of truth. Custodians and CSDs are not required to operate blockchain infrastructure; instead, the DLT layer acts as a coordination and audit mechanism, sitting alongside existing messaging standards such as SWIFT and ISO 20022.
Scalability and Auditability
IOSCO correctly highlights that scalability and auditability are essential for tokenised infrastructure intended for institutional settlement. Any viable system must support large volumes of transactions while preserving transparency, privacy, and predictable performance.
We have previously written to the European Commission on DLT market infrastructure, noting that permissionless, UTXO-based architectures avoid the governance concentration and throughput limits inherent in closed consortium chains (4). High-capacity public networks, with elastically scalable block sizes and predictable fees, provide the neutrality, performance headroom, and auditability required for institutional settlement. As outlined in our letter to the Commission and subsequent publications, these characteristics help ensure that tokenised settlement remains stable even under elevated activity, without introducing new bottlenecks or congestion risks.
We believe that these characteristics align closely with IOSCO’s expectations for predictable, auditable settlement processes. We offer this experience simply to illustrate that some technological designs may map more naturally to financial settlement lifecycles than others. We recognise that different jurisdictions may adopt varied approaches, but principles of scalability, transparency, and determinism remain universal.
Legal Framework
Tokenovate strongly supports IOSCO’s emphasis on legal certainty. In our view, tokenisation can only support institutional settlement if its design is firmly grounded in existing frameworks of contract and property law, along with laws and regulations relating to settlement finality and financial collateral. Technology alone cannot deliver the certainty that markets require; any credible solution must operate within the long-standing legal architecture that governs ownership, transfer, security and finality.
The general design of the Novat protocol is therefore intentionally conservative. It is structured to respect and preserve the operation of existing law, rather than creating new categories of digital property or parallel records of title. Three principles guide this approach:
- The underlying asset remains within the custodial chain: All transfers ultimately occur through the recognised book-entry systems of custodians and CSDs. This ensures that established legal protections (particularly those relating to settlement finality and collateral arrangements) remain fully intact.
- The digital representation evidences, but does not replace, the underlying entitlement: A Novat functions as a short-lived, contractually defined representation of a settlement obligation. It is created only once the relevant asset has been immobilised, and it is extinguished as soon as the custodian updates the authoritative register. This avoids creating free-standing digital rights that might conflict with established concepts of ownership.
- Finality is tied to the authoritative register: Legal finality continues to arise at the moment the custodian or CSD updates its ledger of record. The on-chain representation provides operational coordination and evidential certainty, but does not alter the legal moment at which title passes.
Our analysis has been developed in line with existing market standards, including emerging industry guidance on tokenised collateral from industry associations such as ISDA. These frameworks demonstrate that tokenised settlement can be implemented in a manner that is fully consistent with current law, provided that the digital representation is properly stapled to the underlying entitlement and its lifecycle is aligned with that of the off-chain asset.
This is the organising principle behind Novat’s design: automation and programmability should enhance, rather than displace, the legal structures on which participants and regulators rely.
Industry Collaboration
We view IOSCO’s work in this area as foundational. The Report provides an essential framework for safe, standards-based innovation in tokenised markets. Tokenovate would welcome the opportunity to share further detail on the Novat protocol and on our CDM-based programmability work with ISDA and FINOS.
We would be pleased to:
- Demonstrate the Novat protocol to the Fintech Task Force or the Tokenization Working Group
- Share findings from our pilot activities, including integration with custodial infrastructures
- Contribute to any IOSCO-led consultations or working groups on tokenisation standards, interoperability, or synchronisation models
We firmly believe that collaboration between regulators, infrastructures, and innovators will be essential to realising the efficiencies and risk reductions that tokenisation can offer, while maintaining the legal certainty and market integrity on which global financial stability depends.
In closing, let us reiterate our gratitude for IOSCO’s insightful report. Tokenovate and IOSCO ultimately share a common mandate to strengthen the efficiency and resilience of financial markets. We view Novat as a tool to help achieve that mandate; a bridge between the old and the new that can reduce fragmentation and risk in line with the report’s recommendations. We are excited to work together with regulators and industry peers in rolling out solutions like Novat in a responsible, scalable way. We firmly believe that through respectful collaboration and shared innovation, we can modernise capital markets infrastructure for all participants, without undermining the stability and trust that underpin our financial system.
Thank you for your consideration. We look forward to the possibility of deeper engagement with IOSCO on these important topics.
Please do not hesitate to contact us to arrange a discussion or demonstration.
Yours Sincerely,
Ciarán McGonagle
Chief Legal & Product Officer
Tokenovate
Footnotes:
- See: https://www.tokenovate.com/use-cases/the-novat/
- DTI is a global, ISO-accredited identifier for digital tokens, issued under ISO 24165 by the DTI Foundation to support regulatory reporting, transparency, and market integrity.
- See: https://www.isda.org/2025/10/21/isda-and-tokenovate-launch-taskforce-to-develop-smart-contract-framework-within-the-cdm/
- See: https://www.tokenovate.com/insights/blog/enhancing-financial-services-with-permissionless-blockchains-4/