Crypto in the UAE: Framework Enhanced to Foster Innovation and Attract New Investment
The Dubai Financial Services Authority announced new additions to its crypto regime to attract new businesses to invest in and leverage crypto tokens.
Under the regimes introduced by the Dubai Financial Services Authority (DFSA), firms in the Dubai International Financial Centre (DIFC) can apply for and obtain a license to provide financial services with Crypto Tokens in or from the DIFC. The DFSA's regulatory regime is largely technology-neutral, allowing firms to leverage a vast range of financial services with Crypto Tokens.
DFSA today announced key amendments to its Crypto token regime. These changes stem from the proposals outlined in the initiative that was first announced in January 2024, and mark a significant step in refining and advancing the regulatory environment for Crypto Tokens in DIFC.
Investment in Crypto Funds
External and Foreign Funds: Now allowed to offer units in funds that invest in well-known cryptocurrencies.
Domestic Qualified Investor Funds: Permitted to invest in lesser-known cryptocurrencies.
Custody and Management of Crypto Tokens
Custody: Guidelines on how to safely store cryptocurrencies.
Staking: Rules for earning rewards by holding certain cryptocurrencies.
Combating Financial Crime
Compliance Guidance: New rules to prevent financial crimes, including detailed guidance on the "travel rule" for crypto transactions.
Monitoring and Analysis: Enhanced measures for tracking transactions and analyzing blockchain data to detect illegal activities.
Recognition and Fees for Crypto Tokens
Fiat Crypto Tokens (Stablecoins): Criteria for recognizing stablecoins, which are cryptocurrencies tied to traditional currencies.
Recognition Fees: Introduction of fees associated with the recognition process of cryptocurrencies.
These changes were proposed after analysis of recent market developments, recommendations from international standard-setters, and the DFSA’s supervisory experience. Over the past two years, the DFSA has engaged with over 100 firms looking to be licensed, gaining valuable insights into the market dynamics and regulatory needs.
Since the Crypto Token regime came into force in 2022, international standards have evolved significantly. The International Organisation of Securities Commissions (IOSCO) published recommendations on Crypto, Digital assets, and Decentralised Finance (DeFi). In addition, the Basel Committee proposed amendments to the standards for banks’ exposures to Crypto assets, focusing on reserve assets of stablecoins.
Ian Johnston, Chief Executive of the DFSA, said, “Our objective with the Crypto Token regime is to foster innovation in a responsible and transparent manner while ensuring we meet our regulatory objectives. At the DFSA, we have taken a balanced approach in the development of this regime and remain committed to evolving it in line with global best practices and standards.”
All firms, whether currently authorized by the DFSA or not, who are interested in conducting business related to Crypto Tokens within or from the DIFC, can apply via the DFSA website.
