Cryptocurrencies

The Dubai Financial Services Authority (DFSA) has announced changes to its cryptocurrency regime.

The Dubai Financial Services Authority (DFSA) has announced changes to its cryptocurrency regime to strengthen and expand the regulatory framework for tokens within its special economic zone.

The Dubai Financial Services Authority is an independent regulator in the United Arab Emirates that oversees entities registered at the Dubai International Financial Center (DIFC), one of the country’s special economic zones.

On June 3, the Dubai Financial Services Authority announced that it had revised its cryptocurrency regime to reflect changes resulting from Consultation Paper No. 153, published in January 2024. The changes covered several critical areas, including funds investing in cryptocurrencies and the identification process. On cryptocurrency tokens.

Offshore and domestic funds invest in crypto tokens

Regarding funds, the amendment affected the possibility of offering offshore and foreign fund units that invest in recognized cryptographic tokens. Previously, the Dubai Financial Services Authority restricted fund activities involving cryptocurrency tokens.

In its latest consultation paper, the regulator said fund and asset managers have described the regime as too strict. The Dubai Financial Services Authority wrote:

“They felt that the current regulatory approach was too strict, particularly the restrictions on offshore funds and foreign funds investing in cryptocurrency tokens and, for some, the restrictions on investing in crypto tokens -recognized currency only.”

The changes also affected the ability of qualified domestic investor funds to invest in unrecognized tokens. Since the regulation was published, the DFSA has only recognized five crypto tokens: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP) and Toncoin (TON).

Although the regulator believes the recognition process is important, it has also considered the possibility of allowing local funds to make limited investments in unrecognized cryptocurrencies as long as the exposure does not exceed 10% of the value gross liquid assets (GAV) of the fund.

Token recognition fees and stablecoin standards

Prior to the changes, the token recognition application fee was $10,000 per token. The DFSA noted that many considered these fees too high, particularly for companies seeking recognition of multiple tokens. Additionally, some viewed the process as an “unnecessary burden.”

Based on the feedback, the regulator reduced the fee to $5,000 and introduced additional recognition standards for stablecoins – cryptocurrency tokens linked to fiat currencies. The Dubai Financial Services Authority confirmed in its consultation document that these changes do not indicate a more lenient stance.

“We emphasize that our proposal does not mean that we are relaxing our approach, but rather aims to provide the DFSA with the flexibility to recognize Fiat Crypto tokens issued in other jurisdictions with similar regulation,” they wrote.

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Aiming to promote innovation

Ian Johnston, CEO of the Dubai Financial Services Authority, said in a press release that the regulator’s goal for the cryptocurrency regime is to “promote innovation in a responsible and transparent manner.” They do this while achieving their organizational goals, the executive said. Johnston said:

“At the Dubai Financial Services Authority, we have taken a balanced approach in the development of this system and we remain committed to developing it in line with international best practices and standards.”

According to the announcement, the changes reflect market developments, recommendations from international standards bodies and the regulator’s oversight expertise.

The regulator added: “Over the past two years, the DFSA has worked with more than 100 companies seeking to obtain a license and gained valuable insights into market dynamics and regulatory needs. »

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