03 Jun

The Dubai Financial Services Authority (DFSA) has revised its regulations concerning cryptocurrency tokens in an effort to enhance the regulatory framework within the Dubai International Financial Centre (DIFC), a designated economic zone in Dubai.

Announced on June 3 by the DFSA, these updates stem from Consultation Paper 153, issued in January 2024. The revisions concentrate on various significant aspects, such as the guidelines for funds investing in crypto tokens and the procedures for identifying and acknowledging these tokens.

Complete Regulatory Changes in Dubai Made by DFSA

The regulatory mandate of the DFSA is a long document. Asset management, Islamic finance, banking, credit services, securities, investment funds, custody, trust services, insurance, crowdfunding platforms, money services, and exchanges for foreign stocks and commodities derivatives are all included.

Furthermore, the DFSA oversees the implementation of Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) laws for designated non-financial enterprises and professions in the DIFC, as well as regulated firms.

The changes first impact investment funds. Units of external and international funds are now able to invest in recognized cryptocurrency tokens thanks to the DFSA. Furthermore, qualifying domestic investor funds are now able to purchase unrecognized cryptocurrency tokens.

Second, in order to guarantee the security and transparency of these operations, new regulations will control token custody and staking. Third, new guidelines on adhering to financial crime legislation have been released by the DFSA. These guidelines include the application of the "travel rule," which necessitates disclosing information about the sender and recipient of cryptocurrency transactions.

Finally, a revision has been made to the crypto token recognition mechanism. Stablecoins, or fiat-crypto tokens, are now recognized by the DFSA according to new standards.

DFSA Has Been Taking Part in Market Activities

The DFSA has dealt with over 100 businesses that are applying for licenses within the last two years. This interaction has given important insights into the dynamics of the market and the requirements of regulations. Since its implementation in 2022, the crypto token system has developed in accordance with global norms.

The International Organization of Securities Commissions (IOSCO) has issued recommendations regarding crypto assets and decentralized finance (DeFi), while the Basel Committee has proposed adjustments focusing on banks' exposure to crypto assets, particularly emphasizing stablecoins' reserve assets.

Ian Johnston, the chief executive of the DFSA, remarked on these changes:

"Our aim with the Crypto Token regime is to promote innovation in a responsible and transparent manner while fulfilling our regulatory objectives. We have adopted a balanced approach and are dedicated to evolving in accordance with global best practices and standards."

These revisions also impact the capacity of domestic qualified investor funds to invest in unrecognized tokens. Since the implementation of the regime, the DFSA has only acknowledged five crypto tokens: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), XRP, and Toncoin (TON).

June 2024, Cryptoniteuae

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