Dubai finance agency (DFSA) to regulate investment tokens

Dubai’s Financial Services Agency (DFSA) announced new rules for 'investment tokens,' which can represent securities or be derivatives

The Dubai Financial Services Authority (DFSA) has launched its Regulatory Framework for Investment Tokens.

According to the newest regulations, this framework mirrors the proposals defined in Consultation Paper 138 released in March 2021 and creates the first phase of the DFSA’s Digital Assets regime.

The regulatory framework says an Investment Token can be either a Security Token or a Derivative Token.

Essentially, these can be defined as “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”.

On the other hand, the derivative token can be defined as a cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using DLT or other similar technology.

Also, there are two new principles which include granting rights and obligations that are substantially similar in nature to those conferred by security or derivative or having a substantially similar purpose or effect to security or derivative.

The Investment Tokens regulatory framework covers all persons interested in market, issue, trade or hold investment tokens in or from the Dubai International Financial Centre (DIFC) and authorised firms wishing to undertake financial services relating to investment tokens.

Move is ‘good news for industry’, says Binance MENA chief

The DFSA, which recently formed a framework that allows the DWCA to issue all approvals and licences needed for financial activities relating to crypto-assets, is now drawing up proposals for tokens not covered by the Investment Tokens regulatory framework.

These are expected to cover exchange tokens (also known as cryptocurrencies), utility tokens and certain asset-backed tokens (stablecoins).

The DFSA intends to issue a second consultation paper later in the fourth quarter.

Binance’s Middle East and North Africa director Omar Rahim  said: “There have been a number of ‘false starts’ in the security token field over the last four years, so this kind of progress is very welcome indeed.”

“We believe security tokens have the potential to grow the crypto space 100 times, and as such we will be monitoring the landscape with interest,” he asserted.

Peter Smith, Managing Director, Head of Strategy, Policy and Risk at the DFSA commented that 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,” he resumed.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.


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