The Dubai Financial Services Authority (DFSA) has embraced digital assets further today by introducing a regulatory framework for investment tokens.
The new rules, the first of two phases of the DFSA’s digital assets regime, regulate security and derivative tokens.
“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,” exchange platform Binance’s Middle East and North Africa director Omar Rahim told Arabian Business.
“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.”
Exchange, utility, and fiat-backed tokens (or stablecoins) are not yet regulated. The DFSA said in a statement it is formulating proposals for other tokens, including cryptocurrencies and are expected to cover those three categories and a second “consultation paper” will likely be issued later this year.
“This builds on the work that is ongoing in the crypto regulation space in the UAE as a whole,” Rahim said. “This is good news for the industry. The UAE seems to be taking a lead in regulating this fast-moving space.”
The investment tokens regulatory framework applies to persons or entities interested to market, issue, trade or hold investment tokens in or from the Dubai International Financial Centre (DIFC). It applies as well to authorised firms wishing to undertake financial services relating to investment tokens, such as dealing in, advising on, or arranging transactions relating to, investment tokens, or managing discretionary portfolios or collective investment funds investing in investment tokens.
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.”
Omar Rahim, director of Binance MENA.
Cryptocurrency regulation globally is contentious, with some countries, like the UAE, embracing the technology, although others, like China, have banned trading and mining outright while developing their own state-backed digital coin. Recently, Bank of England deputy governor Sir Jon Cunliffe warned that digital currencies could trigger a financial meltdown, like in 2008, unless governments step forward with tough regulations.
Simon Hudson (pictured below), founder and CEO of Cheeze Inc., told Arabian Business: “Regulating tokens in my opinion is a step in the right direction. Blockchain technology is still very early but its huge adoption and daily trade volume shows that it is here to stay. By adding an underlying regulation will further help blockchain tokens move into the mainstream.
“Investing in a token that backs an established business or growing start-up is a new way to be part of the company’s success and regulating this gives confidence for investors looking to enter the space.
“In a space where everyone is still learning I think it is important to have structure and regulation to ensure that people have security and reassurance. I believe the move will see a new wave of people joining the space.”
In Dubai, the government has welcomed the technology that those within the space say will be the future of finance. In September, the Securities and Commodities Authority (SCA) and the Dubai World Trade Centre Authority (DWTCA) entered into an agreement supporting the regulation, offering, issuance, listing and trading of crypto assets and related financial activities within DWTCA’s free zone.
And in March, the Dubai Multi Commodities Centre (DMCC), the commodities trade and enterprise free zone, said it would work with the SCA to establish a regulatory framework for businesses offering, issuing, listing, and trading crypto assets.
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