Reported by Simone Martin

(Summary shared below. To read full report, go to: https://www.thomsonreuters.com/en-us/posts/government/tokenization-vs-kyc/)

Tokenization is transforming how value moves, especially in real estate, where everything from penthouses to mountain villas can be fractionalized and traded like digital shares. This shift promises unprecedented access and efficiency — but it also opens the door to criminals who have historically been the quickest adopters of new financial technologies. Unless compliance fundamentals like KYC, AML controls, and sanctions screening are coded directly into token protocols, the same technology that democratizes ownership will also supercharge illicit finance.

The crypto industry has already seen what happens when innovation outpaces safeguards. The catastrophic collapse of the Terra/Luna ecosystem in 2022 exposed how the absence of KYC, unsustainable yields, and fragile tokenomics can trigger massive financial-stability risks. Criminals exploited the system’s loopholes, regulators scrambled to assess the cascading effects, and the event ultimately reignited global pressure for clearer oversight of virtual assets and stablecoins. It’s become a case-study reminder that compliance cannot be bolted on after launch — it must shape the initial architecture.

As tokenization accelerates, regulators are emphasizing rigorous, risk-based supervision. FATF and global authorities now expect strong KYC, ongoing risk assessments, transaction monitoring, and sanctions screening to be embedded in the operational fabric of both traditional institutions and virtual asset service providers. Coding these requirements into tokenized systems isn’t just possible — it’s essential. AML isn’t friction; it’s the foundation for preventing money laundering, terrorist financing, and systemic contagion.

If builders and coders truly understand the compliance outcomes regulators demand, tokenized real-world assets could represent a powerful alignment between FinTech innovation and financial integrity. The future of tokenization will depend on whether the industry delivers “tokens of affection” to regulators — digital assets with AML protections woven directly into the protocol, ensuring that security and innovation advance together rather than in conflict.