Dubai Financial Services Authority makes key changes to its crypto token regime

The Dubai Financial Services Authority (DFSA) announced today some key amendments to its Crypto Token regime.

These changes stem from Consultation Paper 153 – Updates to the Crypto Token regime published in January 2024, and mark a significant step in refining and advancing the regulatory environment for Crypto Tokens in the Dubai International Financial Centre (DIFC).

The amendments cover funds, custody, financial crime and recognition of crypto tokens, more details here.

One key change now allows 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 had recognized only five crypto tokens: Bitcoin, Ether, Litecoin and Toncoin.

Previously, the application fee for token recognition was $10,000 per token, which many firms considered excessively high, particularly for those seeking recognition for multiple tokens.

In response to this feedback, the DFSA reduced the fee to $5,000 and introduced additional recognition criteria for stablecoins, which are crypto tokens pegged to fiat currencies.

The new regime will give the ability to offer Units of External and Foreign Funds investing in recognised Crypto Tokens and the ability for Domestic Qualified Investor Funds to invest in unrecognised Crypto Tokens.

The changes are based on recent market developments, recommendations from international standard-setters and the DFSA’s supervisory experience, the DFSA said.

Over the past two years, the DFSA said it had engaged with over 100 firms looking to be licensed, "gaining valuable insights into the market dynamics and regulatory needs".

Since the Crypto Token regime came into force in 2022, international standards have evolved significantly. The International Organisation of Securities Commissions (IOSCO) published recommendations on Crypto, Digital assets, and Decentralised Finance (DeFi).

In addition, the Basel Committee proposed amendments to the standards for banks’ exposures to Crypto assets, focusing on reserve assets of stablecoins.

Ian Johnston, chief executive of the DFSA, said: “Our objective with the Crypto Token regime is to foster innovation in a responsible and transparent manner while ensuring we meet our regulatory objectives. 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.”