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The Dubai Financial Services Authority (DFSA) has introduced amendments to its cryptocurrency token regulations, aiming to enhance and advance the regulatory framework for tokens within the Dubai International Financial Centre (DIFC), a special economic zone in the United Arab Emirates (UAE).
On June 3, the DFSA announced revisions to its crypto token regime following its Consultation Paper 153, released in January 2024. These amendments address key areas, including the rules for funds investing in crypto tokens and the recognition process for these tokens.
External and Domestic Funds Investing in Crypto Tokens
The amendments impact the ability of external and foreign funds to offer units investing in recognized crypto tokens. Previously, the DFSA had imposed strict limitations on fund activities involving crypto tokens. In the recent consultation paper, fund and asset managers expressed that the existing regulatory approach was overly stringent, particularly concerning the restrictions on external and foreign funds investing in recognized crypto tokens.
The changes also allow domestic qualified investor funds to invest in unrecognized tokens, provided the exposure does not exceed 10% of the fund’s gross asset value (GAV). Since the regime’s inception, the DFSA has only recognized five crypto tokens: Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP (XRP), and Toncoin (TON).
Token Recognition Fees and Stablecoin Criteria
Before the amendments, the application fee for token recognition was $10,000 per token. The DFSA acknowledged that many firms found this fee prohibitively high, especially those seeking recognition for multiple tokens. The process was also viewed as burdensome. In response, the DFSA reduced the fees to $5,000 and introduced additional recognition criteria for stablecoins—crypto tokens pegged to fiat currencies. The DFSA emphasized that these changes do not indicate a more lenient regulatory stance but provide flexibility to recognize fiat-backed crypto tokens issued in jurisdictions with comparable regulations.
Fostering Innovation
Ian Johnston, DFSA’s chief executive, stated that the objective of the crypto token regime is to “foster innovation in a responsible and transparent manner” while meeting regulatory goals. Johnston noted, “At the DFSA, we have taken a balanced approach in developing this regime and remain committed to evolving it in line with global best practices and standards.”
The DFSA highlighted that the changes reflect market developments, recommendations from international standard setters, and the regulator’s supervisory experience. Over the past two years, the DFSA has engaged with over 100 firms seeking licenses, gaining valuable insights into market dynamics and regulatory needs.
These regulatory updates signify a significant step in adapting to the evolving crypto landscape, ensuring a balanced approach that promotes innovation while maintaining robust regulatory oversight.
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