The Dubai Financial Services Authority (DFSA), an independent regulator of financial services conducted in or from the DIFC, published its “Framework for Regulating Security Tokens” for public consultation for a period of 30 days. This move comes after DMCC’s announcement last week allowing businesses with crypto assets to set up their office in the free zone.
What’s Included In The Proposed Regulation?
In addition to Security Tokens, there are other tokens created, issued and distributed using Distributed Ledger Technology (DLT) and other similar technology, which aren’t covered in the DFSA proposal. Commonly referred to by regulators as exchange tokens, utility tokens, or stable coins and cryptocurrencies. The DFSA acknowledges the importance of all tokens and has made its stride in the right direction with security tokens.
The proposed regulations include safeguards to provide more protection to investors and address the risks associated with misconduct in security tokens transactions.
The DFSA is proposing a comprehensive and innovative regulatory framework for regulating Security Tokens, a new and growing area of interest for many industry participants. DFSA is actively engaged with key stakeholders in Dubai and around the world on the future of finance and the rapidly growing area of financial technology, including various Distributed Ledger Technology (DLT) applications.
What’s a Security Token?
Security Tokens create rights and obligations that are the same as, or are substantially similar to conventional investment instruments.
The term Security Tokens is used as this is a commonly used term in the industry, but the framework goes beyond typical securities to cover derivatives as well. This enables the use of DLT and similar technologies across the full spectrum of investments in a consistent manner.
Key Proposed Changes:
Some of the key changes published by the regulator of the emirate’s financial hub, Dubai International Financial Centre, include:
a. Allowing facilities that trade Security Tokens to have direct access members, including retail clients
b. Enhanced systems and controls requirements to address risks associated with the use of DLT or similar technology
c. Enhanced disclosure in prospectuses
d. Enhanced requirements for those providing custody of digital wallets.
Strengthening Crypto Businesses In Dubai
iOWN Group hails the move as it is a positive step for all the stakeholders involved – the companies providing financial services in the cryptocurrency space and consumers. As the framework addresses risks investors are exposed to while using Distributed Ledger Technology (DLT), it will reinforce trust and confidence to embrace these technologies, which are the future of finance. We are moving towards a cashless society and this framework will encourage Fintech companies to accelerate towards their vision.
Bryan Stirewalt, Chief Executive of the DFSA, said, “The proposal for regulation of Security Tokens is a key milestone in paving a clear and certain path for those issuers who wish to raise capital in or from the DIFC using DLT and similar technology, and for those firms who intend to be involved in this market, by conducting or providing financial services.
He added that the DFSA proposals promote and facilitate innovation, while also protecting consumers, addressing market integrity and mitigating ML/FT and other risks. “We have drawn on the experience of other regulators who have taken cautious steps in this rapidly developing area while addressing DIFC specific needs.”