Yesterday the Dubai Financial Services Authority (DFSA) announced it had implemented a regulatory framework for security tokens issued or traded within the Dubai International Financial Centre (DIFC). The DFSA said it also plans to consult on regulating cryptocurrencies and stablecoins. It addressed security tokens first because that was requested more often. And its definition of security tokens includes both securities and derivatives.
In March, the DFSA published a security token consultation document, and the new rules are based on this. One of the more novel aspects is it explored how to enable person to person (p2p) trading without intermediaries, potentially including permissionless blockchains.
It concluded that no matter the technology, most marketplaces have a market operator. Where a regulatory regime might have required an intermediary to enforce compliance and other procedures, these requirements would now apply to the market operator in the absence of an intermediary. So the market operator becomes the enforcer.
This is an interesting approach because many public blockchain Decentralized Finance (DeFi) applications, whether lending or exchanges, have an organization that wrote the code. If these came within Dubai’s remit, that organization would be required to perform compliance.
Dubai’s regulatory regime for trading includes licensing for Exchanges, Multilateral Trading Facilities (MTFs), Organised Trading Facilities (OTFs) and Clearing Houses. With a few adaptations, the same rules will apply to security tokens.
“Our consultation on Investment Tokens enabled us to understand what firms were looking for in a regulatory framework and introduce a regime that is relevant to the market,” said Peter Smith, Managing Director, Head of Strategy, Policy and Risk at the DFSA. “We look forward to receiving applications from interested firms and contributing to the ongoing growth of future-focused financial services in the DIFC.”