Dubai Financial Services Authority Revises Crypto Token Regulations for Funds

The Dubai Financial Services Authority (DFSA) has updated its regulatory framework concerning crypto tokens within its jurisdiction, aiming to enhance investment flexibility and oversight within the sector.

Operating as an independent regulator within the United Arab Emirates (UAE), the DFSA supervises financial activities in the Dubai International Financial Centre (DIFC), a major economic zone in the region. On June 3, the DFSA announced these regulatory updates following insights gathered from Consultation Paper 153 issued in January 2024.

Key Changes to Fund Investments in Crypto Tokens

The revisions primarily affect how both external and domestic funds can invest in crypto tokens. Initially, the DFSA’s rules were viewed as overly restrictive, particularly concerning the investment capabilities of external and foreign funds in recognized crypto tokens.

Responding to feedback from fund and asset managers who found the previous regulations constraining, the DFSA has now adjusted these rules. These changes include easing restrictions on external funds and foreign funds that invest in recognized crypto tokens and permitting domestic qualified investor funds to invest in unrecognized tokens—provided these investments do not exceed 10% of the fund’s gross asset value (GAV).

Recognition of Crypto Tokens and Stablecoin Criteria

Additionally, the DFSA addressed the token recognition process. Previously, a significant fee of $10,000 was required for each token recognition application, which stakeholders criticized as prohibitively expensive and burdensome, especially for entities seeking to register multiple tokens. In response, the DFSA has reduced this fee to $5,000 and introduced more comprehensive criteria for the recognition of stablecoins, which are cryptocurrencies pegged to stable assets like fiat currencies.

The DFSA emphasized that these adjustments are designed not to soften their regulatory stance but to adapt to the evolving needs of the digital asset market and to align with international regulatory standards.

Aiming for Responsible Innovation

Ian Johnston, Chief Executive of the DFSA, highlighted that the aim of revising the crypto token regulations is to foster responsible innovation within the financial sector. He affirmed the authority’s commitment to maintaining a balanced regulatory approach that aligns with global practices and adequately addresses emerging market dynamics and challenges.

The DFSA’s recent regulatory updates reflect its ongoing efforts to accommodate market growth, align with recommendations from international standard-setting bodies, and leverage insights from its supervisory experiences and interactions with over 100 firms seeking licenses in the past two years.