Dubai Financial Authority Introduces Regulatory Framework for Investment Tokens

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In Brief
  • The Dubai Financial Services Authority (DFSA) announced that it has introduced a regulatory framework for investment tokens.

  • Reflecting proposals outlined in a consultation paper issued in March, the framework marks the first phase of the DFSA’s Digital Assets regime.

  • The DFSA said it would issue its second consultation paper, formally including cryptocurrencies, later in Q4.

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The Dubai Financial Services Authority (DFSA) announced that it has introduced a regulatory framework for investment tokens.

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Reflecting proposals outlined in a consultation paper issued in March, the framework marks the first phase of the DFSA’s Digital Assets regime. The regulatory framework defines investment tokens as either a security token or a derivative token. 

The announcement more specifically defines investment tokens as “a security or derivative in the form of a cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using Distributed Ledger Technology (DLT) or other similar technology.” 

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The above definition that also “confers rights and obligations that are substantially similar in nature to those conferred by a security or derivative, or has a substantially similar purpose or effect to a security or derivative,” were also included.

The regulation’s remit 

The financial authority stated that the regulatory framework would apply to anyone interested in marketing, issuing, trading, or holding investment tokens, in relation to the Dubai International Financial Center (DIFC). It also applies to “authorized firms” seeking to offer financial services related to investment tokens. These services include dealing, advising, and arranging transactions, as well as managing portfolios and investment funds with investment tokens.

“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,” said DFSA Managing Director, Head of Strategy, Policy and Risk Peter Smith. “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.” 

Although cryptographically secured through DLT, the announcement does not define investment tokens as cryptocurrency. What the authority called “exchange tokens” would be covered under new proposals, along with utility tokens and “certain asset-backed tokens (stablecoins).” The DFSA said it would issue its second consultation paper later in Q4. Dubai has reportedly become one of the more cooperative environments for cryptocurrency investment.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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