The tokenisation process is fraught with potential compliance pitfalls. Based on observations from recent market activity, there are three common areas where businesses frequently encounter regulatory traps:

• The “Utility Token” Misclassification: A common strategy by some issuers is to attempt to label their RWA as a “utility token” in an effort to circumvent SFA regulation. MAS will likely disregard this label and view the token as a security if it grants an investment return or an explicit ownership right. Such misclassification can lead to unlicensed fundraising, resulting in significant regulatory penalties and potential criminal liability. It is therefore crucial to always obtain a comprehensive legal opinion to definitively confirm a token’s regulatory classification.
• The Resale Trap: An issuer may lawfully rely on the “Accredited Investor” exemption for the primary sale of the tokens. However, the nature of blockchain tokens often makes them freely transferable. If an accredited investor subsequently resells the token to a retail investor on a secondary market, the original exemption may be voided. MAS could potentially interpret this secondary resale as being part of the initial public offer, which would retroactively trigger the requirement for a prospectus.
• Unlicensed Dealing: Facilitating the trading of RWA tokens without holding the necessary CMS licence constitutes a direct breach of the SFA. Directors of the companies involved in such activities can be held personally liable for these regulatory breaches.

Tokenising real-world assets presents immense potential for democratising investment and streamlining financial processes. Nevertheless, in Singapore’s stringent regulatory environment, innovation must not come at the expense of compliance. Issuers and platforms can establish sustainable, legally robust RWA businesses by proactively understanding the SFA classification principles and securing the appropriate licences or exemptions early in their development lifecycle.