On October 25, 2021, the Dubai Financial Services Authority (DFSA), the regulator of the Dubai International Financial Center (DIFC), announced that it has put in place a regulatory framework for investment tokens issued or traded within the DIFC (Regulatory framework for investment tokens), which stems from Consultation Document No.138 (Regulation of security tokens) he posted earlier in March of this year. Therefore, the UAE is proving that it is a global leader and a hub for technological innovation (and entrepreneurs); it fully embraces the global adoption of cryptocurrencies and blockchain technologies, as well as the demand for investment tokens, and the number of companies within the DIFC that are eager to issue and trade them, is growing. constant increase.
What is the regulatory framework for investment tokens used for?
It stems from a number of “false starts” in the security token arena over the past few years, as Binance’s MENA director asserts, and is seen by market participants as a step in the right direction. , especially since the crypto market is still there. growth. Peter Smith, Managing Director of DFSA, sees this as creating an ecosystem for innovative businesses to thrive in the UAE and to introduce a framework suitable for today’s market.
The UAE has recently stepped up its presence in the digital asset industry, UAE Minister of Economy Abdulla Bin Touq Al Marri said last April during a panel for the World Summit on technology governance of the World Economic Forum, that cryptocurrencies and tokenization of assets will be key. the country’s plans to double its economy in 10 years. In July, the UAE joined the central bank’s global digital currency race.
The main features of the regulatory framework for investment tokens include:
- facilitate the admission to trading of investment tokens on DFSA-regulated exchanges and multilateral trading facilities;
- the system and control requirements applicable to operators of trading venues, including the requirement for an independent technology audit;
- providing direct access to trading venues, including retail clients, which is a significant departure from the current intermediated trading model;
- put in place additional requirements for digital wallet providers, which hold investment tokens;
- additional disclosure requirements for prospectuses and other offering materials that are used in the offering and marketing of investment tokens; and
- additional requirements for other financial service providers who trade, organize, advise and conduct asset management activities involving investment tokens.
What is an investment token?
The regulatory framework for investment tokens defines an âinvestment tokenâ as a security token or a derivative token. It is essentially a question of:
- a security or derivative in the form of a cryptographically secure digital representation of rights and obligations issued, transferred and stored using distributed ledger technology (DLT) or any other similar technology; and
- a cryptographically secure digital representation of rights and obligations which is issued, transferred and stored using DLT or other similar technology and: (a) confers rights and obligations which are substantially similar in nature to those conferred by a security or a derivative; or (b) has an object or effect substantially similar to a Security or a Derivative.
The key factors that the DFSA considers to be the difference between conventional securities or derivatives and investment tokens is that the latter confer attributable rights and interests to its holders which are issued, stored and transferred using cryptography. and DLT while appealing to investors and consumers. protection needs and covering market integrity risks, while complying with the laws and regulations relating to the fight against money laundering and the financing of terrorism.
Who does it apply to?
The regulatory framework for investment tokens covers all parties interested in trading, issuing, trading or holding investment tokens in or from the DIFC and authorized companies wishing to provide financial services related to investment tokens. ‘investment. Parties wishing to trade investment tokens at the DIFC must present a detailed analysis to the DFSA to obtain approval or authorization to conduct activities related to that investment token. As such, it provides advice and assistance to the person / entity wishing to conduct financial activities in relation to investment tokens and to determine whether the token is in fact an investment token and (if applicable) what type it is.
In addition, the DFSA recently formed a framework that allows the Dubai World Trade Center Authority to issue all necessary approvals and licenses for financial activities related to crypto-assets, and is currently developing proposals for tokens not covered by the regulatory framework of investment tokens. . These should cover exchange tokens (also known as cryptocurrencies), utility tokens, and some asset-backed tokens (stablecoins).