Dubai financial regulator updates crypto token rules for funds

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The Dubai Financial Services Authority (DFSA) has announced amendments to its cryptocurrency token regime to enhance and advance the regulatory framework for tokens within its special economic zone.

The DFSA is an independent regulator in the United Arab Emirates (UAE) which oversees entities registered in the Dubai International Financial Centre (DIFC), one of the country’s special economic zones.

On June 3, the DFSA said it revised its crypto token regime to reflect changes stemming from its Consultation Paper 153, published in January 2024. The amendments addressed several vital areas, including funds investing in crypto tokens and the recognition process for crypto tokens.

External and domestic funds investing in crypto tokens

With regard to funds, the amendment affected the ability to offer units of external and foreign funds investing in recognized crypto tokens. Previously, the DFSA had restricted fund activities involving crypto tokens.

In its recent consultation paper, the regulator said that fund and asset managers described the regime as too strict. The DFSA wrote:

“They expressed the view that the current regulatory approach was too stringent, especially the limitations on External Funds and Foreign Funds investing in Crypto Tokens and, for some, the restriction on investing in Recognised Crypto Tokens only.”

The changes also affected the ability of domestic qualified investor funds to invest in unrecognized tokens. Since the regime was enacted, the DFSA only recognized five crypto tokens: Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP (XRP) and Toncoin (TON).

While the regulator believes that the recognition process is important, it also considered the viability of allowing domestic funds to make limited investments in unrecognized crypto as long as the exposure did not exceed 10% of the fund’s gross asset value (GAV).

Token recognition fees and stablecoin criteria

Before the amendments, the application fee for token recognition was $10,000 per token. The DFSA noted that many considered this fee excessively high, particularly for firms seeking recognition for multiple tokens. Additionally, some perceived the process as an “unnecessary burden.”

Based on the feedback, the regulator reduced the fees to $5,000 and introduced additional recognition criteria for stablecoins — crypto tokens pegged to fiat currencies. In its consultation paper, the DFSA emphasized that these changes do not indicate a more lenient stance.

“We emphasize that our proposal does not mean we are relaxing our approach, rather it is meant to provide the DFSA with the flexibility to recognize Fiat Crypto Tokens issued in other jurisdictions with comparable regulation,” they wrote.

Related: UAE agriculture authority prohibits crypto mining on farms: Report

Aiming to foster innovation

DFSA chief executive Ian Johnston said in a press release that the regulator’s objective with the crypto token regime is to “foster innovation in a responsible and transparent manner.” The executive said that they are doing this while also meeting their regulatory objectives. Johnston said:

“At the DFSA, we have taken a balanced approach in the development of this regime and remain committed to evolving it in line with global best practices and standards.”

According to the announcement, the changes reflect market developments, recommendations from international standard setters, and the regulator’s supervisory experience.

“Over the past two years, the DFSA has engaged with over 100 firms looking to be licensed, gaining valuable insights into the market dynamics and regulatory needs,” the regulator added.

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