The Dubai Financial Services Authority (DFSA) has made revisions to its cryptocurrency token regulations in order to strengthen and advance the regulatory framework for tokens within its special economic zone. As an independent regulator in the United Arab Emirates (UAE), the DFSA oversees entities registered in the Dubai International Financial Centre (DIFC), which is one of the country’s special economic zones.
On June 3, the DFSA announced that it had updated its crypto token regulations to reflect the changes proposed in its Consultation Paper 153, which was published in January 2024. The amendments cover several important areas, including funds that invest in crypto tokens and the process for recognizing crypto tokens.
Regarding funds, the amendments affect the ability to offer units of external and foreign funds that invest in recognized crypto tokens. Previously, the DFSA had imposed restrictions on fund activities involving crypto tokens. In its recent consultation paper, the regulator acknowledged that fund and asset managers considered the regulations to be too strict.
The changes also impact the ability of domestic qualified investor funds to invest in unrecognized tokens. Since the enactment of the regulations, the DFSA has only recognized five crypto tokens: Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP (XRP), and Toncoin (TON). However, the regulator recognizes the importance of the recognition process and has considered allowing domestic funds to make limited investments in unrecognized crypto tokens as long as the exposure does not exceed 10% of the fund’s gross asset value (GAV).
Before the amendments, the application fee for token recognition was $10,000 per token. The DFSA received feedback that many considered this fee to be excessively high, especially for firms seeking recognition for multiple tokens. Additionally, some perceived the process as an unnecessary burden. In response to this feedback, the regulator reduced the fees to $5,000 and introduced additional recognition criteria for stablecoins, which are crypto tokens pegged to fiat currencies. The DFSA clarified that these changes do not indicate a more lenient stance, but rather provide the regulator with flexibility to recognize Fiat Crypto Tokens issued in other jurisdictions with comparable regulation.
Ian Johnston, the CEO of the DFSA, stated that the objective of the crypto token regulations is to foster innovation in a responsible and transparent manner while also meeting their regulatory objectives. The changes in the regulations reflect market developments, recommendations from international standard setters, and the regulator’s supervisory experience. Over the past two years, the DFSA has engaged with over 100 firms seeking licensing, gaining valuable insights into market dynamics and regulatory needs.
Overall, the DFSA’s amendments to its cryptocurrency token regulations show its commitment to creating a conducive environment for innovation in the crypto space while ensuring proper regulation and oversight.