DFSA Reforms Cryptocurrency Regulations to Boost Responsible Innovation within Dubai's Economic Zone
Summary:
The Dubai Financial Services Authority (DFSA) has made revisions to its cryptocurrency token rules to strengthen the regulatory framework within its special economic zone. The modifications pertain to essential issues such as funds investing in cryptocurrency tokens and the recognition process for these tokens. Also, token recognition fees are reduced to $5,000 from the previous $10,000, and new criteria for stablecoins have been introduced. These changes aim to promote responsible innovation while ensuring regulatory objectives are met.
Dubai's independent regulatory body, the Dubai Financial Services Authority (DFSA), has revised its rules concerning cryptocurrency tokens to better shape the regulatory context in the city's special economic area. Operating in UAE, the DFSA supervises entities within the Dubai International Financial Centre, a designated economic zone of the nation. The regulator stated on June 3 that changes to its crypto token rules, triggered by Consultation Paper 153 from January 2024, have been put into effect. These revisions handle important issues including crypto token investment funds and the recognition process for these tokens.
In terms of funds, the alterations impact the ability to propose units of foreign and external funds investing in acknowledged cryptocurrency tokens. Before these changes, the DFSA limited fund activities connected with cryptocurrency tokens. The regulator reported, based on recent consultation paper feedback, that the scheme was viewed as too rigid by asset managers and fund.
The modifications also influence how domestic qualified investor funds can invest in unrecognized tokens. Since its inception, only five crypto tokens (Bitcoin, Ether, Litecoin, XRP, and Toncoin) have been approved by the DFSA. While token recognition process stands crucial for the regulator, the viability of letting domestic funds invest in unrecognized cryptocurrency — limited to not exceeding 10% of the fund's gross asset value — was also assessed.
Before the revisions, a single token recognition application required a fee of $10,000. The DFSA documented that this was widely regarded as overly expensive, especially for companies seeking recognition for multiple tokens. As such, the regulator slashed the fees to $5,000 and set new recognition standards for stablecoins, the cryptocurrencies linked to fiat currencies. They stress, however, that this does not signify a lax stance.
Ian Johnston, DFSA chief executive, highlighted that these changes are aimed at promoting innovation responsibly and transparently while achieving regulatory objectives, adhering to global practices and standards. These shifts mirror international standard setters' suggestions, market developments, and the regulator’s supervisory experience. For the past two years, the DFSA has consulted with more than 100 firms aiming to get licensed, resulting in a deeper understanding of market trends and regulatory needs.
Published At
6/3/2024 2:12:33 PM
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