The Dubai Financial Services Authority (DFSA) has introduced a new regulatory framework for Investment Tokens.
The framework reflects the proposals outlined in Consultation Paper 138 (March 2021) and forms the first phase of the DFSA’s Digital Assets regime.
As defined by the regulatory framework, an Investment Token is described as either a Security Token or a Derivative Token. Essentially, these are:
- A Security or Derivative in the form of a cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using Distributed Ledger Technology (DLT) or other similar technology;
- a cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using DLT or other similar technology and:
- (i) confers rights and obligations that are substantially similar in nature to those conferred by a Security or Derivative;
- (ii) has a substantially similar purpose or effect to a Security or Derivative.
The newly-introduced Investment Tokens regulatory framework applies to everyone who is interested in marketing, issuing, trading or holding Investment Tokens from the Dubai International Financial Centre (DIFC).
The framework is also set to apply to authorised firms who are intending to undertake Financial Services relating to Investment Tokens, such as dealing in, advising on, or arranging transactions relating to, Investment Tokens.
This includes the managing of discretionary portfolios or collective investment funds investing in Investment Tokens.
The DFSA is drawing up proposals for tokens not covered by the Investment Tokens regulatory framework. These are expected to cover exchange tokens (cryptocurrencies), utility tokens and certain asset-backed tokens (stablecoins). It’s reported that the DFSA is intending to issue a second consultation paper later in Q4.
Peter Smith, Managing Director, Head of Strategy, Policy and Risk at the DFSA said: “Creating an ecosystem for innovative firms to thrive in the UAE is a key priority for both the UAE and Dubai Governments, and the DFSA. Our consultation on Investment Tokens enabled us to understand what firms were looking for in a regulatory framework and introduce a regime that is relevant to the market. We look forward to receiving applications from interested firms and contributing to the ongoing growth of future-focused financial services in the DIFC.”