Dubai’s financial regulator has published a framework to regulate the use security tokens as technology continues to play an increasingly important role in the financial sector.
The Dubai Financial Services Authority (DFSA) said it has put out the framework for public consultation for a period of 30 days.
The DFSA said it is actively engaged with key stakeholders in Dubai and around the world on the future of finance and the rapidly growing area of financial technology, including various Distributed Ledger Technology (DLT) applications.
Security tokens are essentially digital, liquid contracts for fractions of any asset that already has value, like real estate, a car, or corporate stock. Using security tokens means investors can expect that their ownership stake is preserved on the blockchain ledger.
The framework goes beyond typical securities to also cover derivatives. This enables the use of DLT and similar technologies across the full spectrum of investments in a consistent manner, the DFSA added.
Some of the key changes proposed are allowing facilities that trade security tokens to have direct access members, including retail clients; enhanced systems and controls requirements to address risks associated with the use of DLT or similar technology; enhanced disclosure in prospectuses and enhanced requirements for those providing custody of digital wallets.
Bryan Stirewalt, chief executive of the DFSA
Bryan Stirewalt, chief executive of the DFSA, said: “The proposal for regulation of security tokens is a key milestone in paving a clear and certain path for those issuers who wish to raise capital in or from the DIFC using DLT and similar technology, and for those firms who intend to be involved in this market, by conducting or providing financial services.”
He added that the DFSA proposals promote and facilitate innovation, while also protecting consumers, addressing market integrity and mitigating risks.
“We have drawn on the experience of other regulators who have taken cautious steps in this rapidly developing area, while addressing DIFC specific needs,” he said.
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