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The Dubai Financial Services Authority’s (DFSA) has issued a Crypto Token regulation

Dubai_Regulations_September

The Dubai Financial Services Authority’s (DFSA) has issued a Crypto Token regulation. Its objective is “to foster innovation in a measured, responsible and transparent manner while still meeting the DFSA’s regulatory objectives” as stated in a press release by the authority, announcing its coming into force on November 1st 2022. The regime may be subject to change following the development of international standards.

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Initially the draft regulation was released in March 2022 as a consultation paper for the public to provide feedback on, and in October the authority issued a feedback statement on Consultation Paper 143 (CP143) announcing its final version and date of enforcement.

CP143 areas of focus:
• AML/CFT risks in respect of trading, clearing, holding or transferring Crypto Tokens
• risks relating to, for example, consumer protection, market integrity, custody and financial resources for service providers

The CP143 mentions two token definitions:

  1. One that was introduced in CP138 (Consultation Paper focused on Investment tokens) and agreed upon as the standard token definition within the jurisdiction that defines tokens as a cryptographically secured asset, a digital representation of value or rights, which use DLT or similar technology:

A Token is a cryptographically secured digital representation of value, rights or obligations, which may be issued, transferred and stored electronically, using Distributed Ledger Technology (DLT) or other similar technology.

  1. A second one that defines a token in the scope of the CP143:

A Crypto Token is a Token that is used, or is intended to be used, as a medium of exchange or for payment or investment purposes but excludes an Investment Token, or any other type of Investment, or an Excluded Token. A Crypto Token includes a right or interest in the relevant Crypto Token.

The DFSA categorises Tokens based on:

  1. their recognition status:
    a. Recognised
    b. Unrecognised & Derecognised
  2. their acceptance status
    a. Accepted types of tokens
    i. Cryptocurrencies
    ii. Hybrid Utility Tokens
    iii. Asset Referenced Tokens
  • CP143 focuses on Tokens which are not Investment Tokens covered by CP 138.

b. Excluded
i. Utility Tokens
ii. Non-fungible Tokens
iii. Central Bank Digital Currencies

c. Prohibited
i. Privacy Tokens and Devices
ii. Algorithmic Tokens

Although NFTs and Utility Tokens (UT) are not accepted, issuers of such need to register as a DNFBP if the transactions in these tokens are above USD 15,000.

Authorised entities that wish to sustain NFT and UT related activities, must register a separate legal entity as they are prohibited from combining services covering accepted tokens with NFT and/or UT. An exception is made when it comes to licensed custodians in the DIFC that wish to safeguard and administer NFTs and /or UTs on behalf of their clients.

Who does the CP apply to?
a. Authorised Persons, Registered Auditors and Designated Non-Financial Businesses and Professions (DNFBPs);
b. applicants or potential applicants to become any of these; and
c. advisers to any of the above

Any entity that wishes to conduct business relating to Crypto Tokens in the scope of CP143 in or from the DIFC must apply via the DFSA website www.dfsa.ae/innovation. A General Enquiries Contact Form must be completed in this respect.