Dubai Financial Authority Launches Regulatory Framework For Investment Tokens

November 19, 2021

by CCM

Dubai Financial Authority Launches Regulatory Framework For Investment Tokens

Last updated on November 1st, 2022 at 11:10 am

The Dubai Financial Services Authority has rolled out a new regulatory framework for investment tokens. The new framework is one of the bold steps that the regulatory body has taken to oversee the digital assets sector.

Under the new regulatory framework, the DFSA states that investment tokens can be either security tokens or derivative tokens. The regulatory framework aims to clarify digital asset regulations as the region embarks on a journey to attract crypto firms and investments.

The announcement by the DFSA states that an investment token is

“a security or derivative in the form of a cryptographically, secured digital representation of rights and obligations that is issued, transferred and stores using Distributed Ledger Technology (DLT) or other similar technology.”

The new definition further states that investors who hold investment tokens have the same rights and obligations as investors who hold security or derivative tokens, or it has a “substantially similar purpose or effect to a security or derivative.”

The regulatory body further noted that this new regulatory framework would apply to any individual or firm that wanted to engage in marketing, issuing, trading or holding investment tokens in the Dubai International Financial Center (DIFC).

The regulatory framework will also affect firms that have met the requirements to offer financial products related to investment tokens. These services include trading on behalf of clients, advisory, managing portfolios and funds with investment tokens.

The Managing Director, Head of Strategy, Policy and Risk at the DFSA, Peter Smith, stated that this new regulatory framework would develop a financial environment that encourages innovation. He further noted that this move was beneficial to both the Dubai and the UAE governments.

“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,” Smith noted.

However, this regulatory framework does not mention any correlation between investment tokens and cryptocurrencies, despite the latter being cryptographically secured. The DFSA has also stated that it will issue a second consultation paper in Q4 about exchange tokens, utility tokens and stablecoins.

Crypto Regulatory Framework in the UAE

Dubai has shown a lot of openness and cooperation towards cryptocurrency investments. As a region that has become a major hub for fintechs, the UAE has positioned itself to foster a regulatory framework that will be ideal for firms operating in the crypto space.

On September 22, the Securities and Commodities Authority in the UAE made a massive step towards fostering cryptocurrency investments. The financial market regulator partnered with the Dubai World Trade Centre Authority (DWTCA) to facilitate regulations, offerings, issuance and trading of digital assets and other related financial instruments within the DWTCA free zone.

During the official announcement, the two bodies stated that under the agreement, they would develop a regulatory framework that will govern the approval and licensing of firms that are offering financial activities related to crypto-assets.

The agreement states that the SCA will ensure the firms meet the necessary regulatory requirements. Some of the regulations that the SCA needed to ensure firms comply with are those related to the issuance, listing and trading of crypto assets under the jurisdiction of the DWTCA.