The Dubai Financial Services Authority (DFSA), the regulator of the emirate’s financial centre (DIFC), has launched its Regulatory Framework for Investment Tokens.
The framework mirrors the proposals outlined in Consultation Paper 138 released in March 2021 and forms the first phase of the DFSA’s Digital Assets regime.
According to the regulatory framework, an Investment Token can be either a Security Token or a Derivative Token.
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”.
In addition, there are two new principles which include granting rights and obligations that are substantially similar in nature to those conferred by security or derivative or having a substantially similar purpose or effect to security or derivative.
This new framework applies to anyone interested in market, issue, trade or hold investment tokens in or from the DIFC and authorised firms wishing to undertake financial services relating to investment tokens.
The DFSA, which recently formed a framework that allows the DWCA to issue all approvals and licences needed for financial activities relating to crypto-assets, is now drawing up proposals for 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, DFSA said. These are expected to cover exchange tokens (AKA cryptocurrencies), utility tokens and certain asset-backed tokens such as stablecoins.
“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. 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. We look forward to receiving applications from interested firms and contributing to the ongoing growth of future-focused financial services in the DIFC.” - Peter Smith, Managing Director, Head of Strategy, Policy and Risk at the DFSA
It's worth mentioning that 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.