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DFSA Revises Cryptocurrency Regulations to Enhance Investment Flexibility and Recognize New Tokens

]The Dubai Financial Services Authority (DFSA) has announced updates to its cryptocurrency token regulations to enhance the framework within its special economic zone.

The DFSA, an independent regulator in the United Arab Emirates (UAE), oversees entities in the Dubai International Financial Centre (DIFC), a key economic zone.

On June 3, the DFSA revised its crypto token regime, incorporating changes from Consultation Paper 153, issued in January 2024.

The amendments cover several areas, including funds investing in crypto tokens and the recognition process for these tokens.

Previously, DFSA regulations restricted funds from offering units in external and foreign funds investing in recognized crypto tokens.

The consultation paper revealed that fund and asset managers found the regime too restrictive. The DFSA noted:

“They expressed the view that the current regulatory approach was too stringent, especially the limitations on External Funds and Foreign Funds investing in Crypto Tokens and, for some, the restriction on investing in Recognised Crypto Tokens only.”

The changes now allow domestic qualified investor funds to invest in unrecognized tokens, provided the exposure does not exceed 10% of the fund’s gross asset value (GAV).

Until now, the DFSA only recognized five crypto tokens: Bitcoin, Ether, Litecoin, XRP, and Toncoin (TON).

Previously, the token recognition application fee was $10,000 per token, which many deemed excessively high.

This fee has been reduced to $5,000, and new recognition criteria for stablecoins—crypto tokens pegged to fiat currencies—have been introduced.

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The DFSA clarified:

“We emphasize that our proposal does not mean we are relaxing our approach, rather it is meant to provide the DFSA with the flexibility to recognize Fiat Crypto Tokens issued in other jurisdictions with comparable regulation.”

Ian Johnston, DFSA’s chief executive, stated that the goal of the crypto token regime is to “foster innovation in a responsible and transparent manner” while meeting regulatory objectives. Johnston remarked:

“At the DFSA, we have taken a balanced approach in the development of this regime and remain committed to evolving it in line with global best practices and standards.”

The DFSA highlighted that the changes align with market developments, recommendations from international standard setters, and the regulator’s supervisory experience.

The regulator added:

“Over the past two years, the DFSA has engaged with over 100 firms looking to be licensed, gaining valuable insights into the market dynamics and regulatory needs.”

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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