Digital assets were further embraced today by the Dubai Financial Services Authority (DFSA), which introduced a framework to oversee investment tokens.
The investment tokens regulatory framework will regulate derivative and security tokens. It’s the first of two phases of the DFSA’s digital assets regime. The framework mirrors regulations proposed earlier this year in DFSA’s consultation paper 138.
DFSA’s Managing Director, Head of Strategy, Policy, and Risk, Peter Smith, noted that the framework is relevant to the market thanks to consultations on investment tokens. Consultations enabled DFSA to understand what firms were looking for in a regulatory framework.
Smith emphasized that creating ecosystems for innovative firms to thrive is a key priority for Dubai and UAE governments when introducing the framework. The DFSA regulates the emirates financial center, the Dubai International Financial Center (DIFC).
The DFSA has earlier published the proposed framework for regulating security tokens in March for public consultation. It included clauses for tackling issues in the cryptocurrency industry, including investor protection issues, financial stability, market integrity, terrorism financing, and money laundering threats.
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What the regulation covers
Under the regulatory framework, investment tokens are defined as either derivative tokens or security tokens. They are:
A derivative or security in the form of cryptographically secured digital representations of obligations and rights transferred, issued, and stored through Digital Ledger Technology (DLT) or other technologies or
Cryptographically secured digital representations transferred, issued, and stored using DLT or similar technology and;
Confer obligations and rights substantially similar in nature to those conferred by a derivative or security or
Has a substantially similar effect or purpose to a derivative or security.
The regulatory framework for investment tokens applies to anyone interested in marketing, trading, issuing, or holding investment tokens in or from DIFC. It also applies to authorized companies interested in undertaking investment tokens financial services, including:
Advising on, dealing in, or the arrangement of transactions related to investment tokens.
Management of discretionary portfolios or collective investment funds investing in investment tokens.
Taking the lead in regulation
The investment tokens regulation framework is welcome as great news for the UAE crypto industry. The UAE is at the forefront in regulating the fast-growing digital assets space. The DFSA is formulating other proposals for tokens not covered by the investment tokens regulatory framework.
They intend to issue a second consultation paper later this year to cover utility tokens, exchange tokens or cryptocurrencies, and fiat-backed tokens like Stablecoins. The move is a step in the right direction, and the underlying regulation will help blockchain move further into the mainstream.
Currently, cryptocurrencies like bitcoin are not licensed by the UAE Central Bank. However, different cryptocurrency exchanges have permission to operate in financial-free zones.
