The Dubai Financial Services Authority (DFSA) has unveiled revisions to its regulations concerning cryptocurrency tokens in order to strengthen and enhance 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 based on feedback received from its Consultation Paper 153, which was published in January 2024. The amendments cover various important areas, including funds investing in crypto tokens and the recognition process for such tokens.
Regarding funds, the changes impact 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 had deemed the regulations too stringent. The DFSA stated that it had considered the feedback and decided to allow domestic qualified investor funds to invest in unrecognized tokens to a limited extent. However, the exposure should not exceed 10% of the fund’s gross asset value (GAV). Since the implementation of the regulatory regime, the DFSA has recognized only five crypto tokens: Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP (XRP), and Toncoin (TON).
Additionally, the amendments addressed token recognition fees and introduced new criteria for stablecoins, which are crypto tokens pegged to fiat currencies. Previously, the application fee for token recognition was $10,000 per token, but the DFSA acknowledged that this fee was considered excessively high by many, especially for firms seeking recognition for multiple tokens. In response to the feedback, the regulator reduced the fees to $5,000 and established additional criteria for the recognition of stablecoins. The DFSA clarified that these changes do not indicate a more lenient approach but rather provide flexibility to recognize fiat crypto tokens issued in other jurisdictions with comparable regulations.
Ian Johnston, the CEO of the DFSA, stated in a press release that the aim of the crypto token regulations is to foster innovation in a responsible and transparent manner while also fulfilling regulatory objectives. According to the announcement, the revisions reflect market developments, recommendations from international standard setters, and the regulator’s supervisory experience. Over the past two years, the DFSA has engaged with more than 100 firms seeking licensing, gaining valuable insights into market dynamics and regulatory needs.