Dubai watchdog introduces regulatory framework for investment tokens

The Dubai financial watchdog is seeking to make the city a digital currency haven, introducing a regulatory framework for investment tokens in its latest measure. The framework applies to anyone trading, marketing, or issuing investment tokens in the city, with similar frameworks for exchange tokens, utility tokens, and stablecoins in the pipeline.

Dubai has long established itself as one of the most digital currency-friendly cities, championing the United Arab Emirates’ push towards being a blockchain hub. Borrowing a leaf from countries like Malta and Switzerland that are setting the pace in the sector, it has recognized regulations as a critical factor in the growth of digital currencies.

In its latest move, the Dubai Financial Services Authority (DFSA) has announced the new regulatory framework which it believes is “relevant to the market.”

The framework divides investment tokens into security and derivative tokens. These are securities or derivatives issued and stored using distributed ledger technology in the form of “a cryptographically secured digital representation of rights and obligations,” according to the agency.

“The Investment Tokens regulatory framework applies to persons interested to market, issue, trade or hold Investment Tokens in or from the Dubai International Financial Centre (DIFC),” the agency said.

Companies dealing in, advising on, or processing transactions relating to investment tokens must also refer to the framework, DFSA said.

The agency is still at work to devise a framework for other types of tokens not covered by the Investment Tokens framework. “These are expected to cover exchange tokens (also known as cryptocurrencies), utility tokens and certain asset-backed tokens (stablecoins).”

DFSA will publish a second consultation paper before the year ends.

“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,” Peter Smith, the managing director, head of Strategy, Policy and Risk of the DFSA, commented.

Smith added, “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.”

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