Dubai financial regulator suggests security token regulation

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The Dubai Financial Services Authority (DFSA) regulator has proposed a new policy framework targeting the rapidly growing security tokens sector. It intends to promote the growth of security tokens that could transform the city’s financial services industry.

DFSA published a Consultation Paper No. 138, ‘Regulation of Security Tokens’ on March 29, calling for public participation over the next 30 days. The document includes provisions related to offering security tokens to the public and their admission to trading facilities. Once implemented, companies will be able to process direct payments in security tokens from prospective clients. 

DFSA chief executive Bryan Stirewalt 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 distributed ledger technology (DLT) and similar technology, and for those firms who intend to be involved in this market, by conducting or providing financial services.”

“Our proposals promote and facilitate innovation while also protecting consumers, addressing market integrity, and mitigating ML/FT and other risks. We have drawn other regulators’ experience who have taken cautious steps in this rapidly developing area while addressing the DIFC. We look forward to receiving public comments on these proposals,” he added.

U.S. SEC Commissioner Hester Peirce participated in the fireside chat at the Security Token Summit last March 25. During the discussion, she also answered several questions about security tokens, digital securities, regulatory guidelines and shared her thoughts on traditional equities becoming digitized in the future.

Some of the paper’s proposed changes include allowing facilities that trade security tokens to have direct access to members, including retail clients. It also offers enhanced disclosure in prospectuses, enhanced requirements for custody providers, and amplified systems and control requirements to address risks associated with the use of DLT. The regulator believes these proposals will tackle investor protection needs and misconduct risks. They will also address market integrity and financial stability, especially about thwarting money laundering and terrorism financing threats.

The regulator pledged to issue proposals regarding other security tokens, including utility and exchange tokens, later this year.

Dubai continues to set the pace for digital currencies and blockchain technology in the Middle East. Last year, DIFC pioneered the first KYC blockchain data-sharing platform, aiming to help businesses in the city open digital accounts in the shortest time possible.

See also: SEC Commissioner Hester Peirce discusses “Blockchain Policy Matters” with Bitcoin Association’s Jimmy Nguyen