DFSA unveils regulatory framework for investment tokens

Creating an ecosystem for innovative firms to thrive in the UAE is a key priority, the regulator says

The Dubai Financial Services Authority's framework for investment tokens forms the first two phases of its digital assets regime. Amy Leang / The National

The Dubai Financial Services Authority, the regulator of the emirate’s financial centre, the Dubai International Financial Centre, unveiled its regulatory framework overseeing digital assets.

The framework reflects the proposed regulations outlined in its consultation paper issued earlier this year and “forms the first two phases of the regulator’s digital assets regime”, the DFSA said on Monday.

In March, the DFSA published its framework to regulate security tokens for public consultation, which included clauses to tackle investor protection issues and misconduct risks, as well as address market integrity, financial stability, money laundering and terrorism financing threats.

“Creating an ecosystem for innovative firms to thrive in the UAE is a key priority for both the UAE and Dubai governments, and the DFSA,” Peter Smith, managing director and head of strategy, policy and risk at the DFSA, said.

The investment tokens regulatory framework applies to investors or companies interested in marketing, issuing, trading or holding investment tokens in or from the DIFC, the DFSA said.

The DFSA defines an investment token as either a security token or a derivative token that is a “cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using Distributed Ledger Technology (DLT) or other similar technology”.

The regulatory framework also applies to authorised companies wishing to undertake financial services relating to investment tokens, such as dealing in, advising on or arranging transactions relating to investment tokens or the management of discretionary portfolios or collective investment funds acquiring investment tokens, the DFSA said.

“Our consultation on investment tokens enabled us to understand what firms were looking for in a regulatory framework and introduce a regime that is relevant to the market,” Mr Smith said.

“We look forward to receiving applications from interested firms and contributing to the ongoing growth of future-focused financial services in the DIFC.”

The DFSA is also formulating proposals for other tokens not covered by the investment tokens regulatory framework and intends to issue a second consultation paper on this in the fourth quarter of this year, it said.

These are expected to cover exchange tokens, or cryptocurrencies, utility tokens and certain asset-backed tokens such as stablecoins.

Cryptocurrencies are not licensed by the UAE Central Bank, although a number of cryptocurrency exchanges have been given permission to operate within financial free zones.

The UAE dirham is the only legal tender in the country that is recognised by the Central Bank.