Dubai regulatory watchdog introduces framework for token regulation

As nations around the world grapple with regulatory uncertainty, Dubai’s financial watchdog launched a regulatory framework for investment tokens. Further, a framework for other cryptocurrencies is to be launched soon.

The framework announced by the Dubai Financial Services Authority (DFSA) earlier today, reflects the regulations that had been proposed in the Consultation Paper that was issued earlier in March. Moreover, it is the first of two phases of the DFSA’s Digital Assets regime.

The regulatory framework has defined an Investment Token as either a Security Token or a Derivative Token. The definition was further elaborated in the announcement as,

“A security or derivative in the form of 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 second point noted,

“A cryptographically secured digital representation of rights and obligations that is issued, transferred, and stored using DLT or other similar technology and: (i) confers rights and obligations that are substantially similar in nature to those conferred by a Security or Derivative; or (ii) has a substantially similar purpose or effect to a Security or Derivative.”

The framework applies to individuals or entities who want to market, trade, issue, or hold investment tokens in or from Dubai International Financial Centre (DIFC). It also applies to firms wanting to undertake financial services relating to cryptocurrencies, such as dealing in, advising on, or arranging transactions relating to these tokens, along with portfolio managers and investment funds.

Peter Smith, who is the Managing Director at 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.”

The announcement also noted that the DFSA is drawing up proposals for those tokens that were not covered in the recent framework. These will further cover exchange tokens, or cryptocurrencies, along with stablecoins and utility tokens.

This is expected to be launched soon, in the fourth quarter. The regulations are aimed at safeguarding investors from scams and frauds, while also curbing the use of these assets for money laundering and other illegal financial activities.

Dubai has long shown regulatory proactiveness towards the acceptance of cryptocurrencies and blockchain, enabling it to capitalize from the growing cryptocurrency market in the area. The country’s tax-free policies coupled with significant immigrant populace, have ideally placed it to become a crypto hub. With the launch of regulated crypto exchanges on the way and these regulations in place, such a transformation wouldn’t be too far-fetched.