Regulator in UAE’s Special Economic Zone Unveils Consultation Paper on ‘Crypto Tokens’

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The regulatory arm of the United Arab Emirates (UAE)’s special economic zone, the Dubai International Financial Centre (DIFC), has unveiled a consultation paper outlining its proposed regulatory regime for crypto tokens.

Changes to the Draft Legislation

The Dubai Financial Services Authority (DFSA), the financial regulatory agency of UAE’s special economic zone, the Dubai International Financial Centre (DIFC), has released a consultation paper proposing a regulatory regime for crypto tokens.

The DFSA said the public has until May 6, 2022, to comment on the regulatory agency’s proposal “for a regulatory regime for persons wishing to provide financial services activities in respect of crypto tokens.” Once the public consultation phase is over, DFSA will then make the changes to the draft legislation as it sees fit. The paper explains:

Following the public consultation, we will decide which changes to the proposed regime are necessary and amend the proposed draft legislation as appropriate. The amended Regulatory Law and Markets Law will be submitted to His Highness the President of the DIFC for his consent and then for assent to His Highness the Ruler of Dubai.

The DFSA added that a final version of the laws and rulebook modules will be published on its website. On the other hand, the regulatory agency said interested parties “should not act on the proposals until the relevant changes are made.”

Excluded and Prohibited Tokens

Meanwhile, the DFSA also clarified in this consultation paper that the latest proposals only relate to crypto tokens which are distinct from investment tokens. According to the regulatory agency, investment tokens — previously referred to as security tokens — are dealt with in a different consultation paper.

The latest consultation paper also distinguishes between crypto tokens and what are referred to as prohibited and excluded tokens. According to the DFSA, excluded tokens consist of utility tokens which are “a type of token that has a specific use case within a closed ecosystem.” Non-fungible tokens (NFTs) and Central Bank Digital Currencies (CBDCs) are also on the list of the DFSA’s so-called excluded tokens.

Privacy tokens and devices, plus algorithmic tokens, are listed in the DFSA’s consultation paper as the prohibited tokens. The regulatory agency said it is proposing to “ban these tokens and introduce a prohibition that no public offer or promotion” of any such tokens should take “place in or from the DIFC.”

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