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DFSA Introduces Crypto Token Regime to Boost Innovation

The Dubai Financial Services Authority (DFSA) has embarked on a ‘Crypto Token regime’ in a bid to address anti-money laundering and terrorism finance risks.

The aim of the UAE central bank’s regime is to foster innovation while meeting regulatory objectives. The DFSA said that it wanted to encourage progress in a “measured, responsible and transparent manner”.

DFSA says it has attempted to take a balanced approach in the development of the regime and will consider further changes and amendments depending on how the sector develops. Should any changes occur, it would introduce them in alignment with best practices and standards adopted by international standard setters.

The regime’s aim

The regime attempts to be comprehensive across all areas of the financial sector. The agency explained that it covers anti-money laundering and terrorism finance risks with respect to all activities regarding crypto tokens. Covering trading, clearing, holding or transferring crypto tokens, the regime also addresses consumer protection, market integrity, custody and financial resources for service providers.

The Dubai-based regulator defined a ‘crypto token’ as one that is used, or is intended to be used, as a medium of exchange or for payment or investment purposes. The definition excludes investment tokens, any other type of investment, or any specifically excluded tokens.

The DFSA has also extended the scope of many current financial services activities. It has done so to enable firms in the Dubai International Financial Centre (DIFC) to provide products or services related to crypto tokens. These activities include advising, dealing, arranging, trading and custody.

The Crypto Token regime forms the second phase of the DFSA’s work in this area. In October 2021, a regime in the DIFC for the ‘Regulation of Investment Tokens‘ had been put into play.

Ian Johnstone - Crypto Token Regime
Ian Johnstone, chief executive, DFSA

Ian Johnston, chief executive of the DFSA explained the reason behind the new regime. He said: “As a progressive regulator, the DFSA recognises the growing interest in innovative financial products.

“Our work to develop a comprehensive Crypto Token regime has taken into account feedback from a broad range of stakeholders. It aims to strike a balance between encouraging innovation in the DIFC and protecting the consumers of these financial products.”

All firms who wish to carry out business relating to crypto tokens in or from the DIFC will be required to apply via the DFSA website. These firms must complete a general enquiries contact form, whether they are authorised by the DFSA or not.

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