DFSA Crypto Token Regime

Following its consultation paper 143 on regulation of crypto tokens, the second phase of Dubai Financial Services Authority’s (“DFSA“) crypto token regime has now come in to effect, as of 1 November 2022.  

This new regime sets out a regulatory landscape for conduct of financial services in the context of crypto tokens, including, amongst others regulations, around: 

• classification of crypto tokens (such as investment tokens, recognised tokens, unrecognised and derecognised tokens, prohibited tokens and excluded tokens), 
• recognition of crypto tokens, noting that no financial service or activity can be undertaken with a crypto token unless it is recognised by the DFSA,
• recognition of jurisdictions having regime equivalent to that of the DFSA’s regime,
• anti-money laundering and combatting the financing of terrorism. The regime prohibits the use of crypto tokens and devices that are used to hide, anonymize, obscure or prevent the tracing of information,
• technology governance and audit, highlighting the expectations of the regulators in terms of technology standard and their audit,
• disclosure requirements, including disclosures around regulatory status, restabilisation and redemption mechanisms,
• marketing and financial promotions, 
• client classification, 
• prudential treatment of crypto token exposures, and
• De-Fi activities and staking. 

Under the new regime the DFSA acknowledges the need to provide transitional arrangements for existing DFSA regulated entities, who have already been engaging in crypto token activities, prior to the formalisation of the regime. Accordingly, it has provided a six (6) month transitional period commencing 1 November 2022. Such transitional arrangement applies only to persons who, before 1 November, were regulated as authorised persons by the DFSA and were carrying on a financial services activity relating to a crypto token, for the continuation of those same activities.

How can we help?

We are equipped to advise potential applicants to understand the regulatory impact of this new regime on their new and / or existing businesses and to the extent required, assist with application process for procuring licenses under the regime.