The Dubai Financial Services Authority (DFSA) has recently published its ‘Framework for Regulating Security Tokens’, which will be available until the end of April.
The Security Tokens – which create rights/obligations equal to conventional instruments of investment – will be regulated by the innovative framework that also covers derivatives as well. The DFSA are actively engaged with key stakeholders in Dubai and across the globe on the future of finance and financial technology, including various Distributed Ledger Technology (DLT) applications.
The DFSA has proposed updating its regulatory regime to facilitate DLT-based activities of: the offer of Security Tokens to the public (and the admission to trading of Security Tokens on trading facilities); the trading of Security Tokens; the provision of other financial services relating to Security Tokens, such as providing custody relating to Digital Wallets holding Security Tokens and advising and arranging.
The key changes proposed are: allowing facilities that trade Security Tokens to have direct access members, including retail clients; enhanced systems and controls requirements to address risks associated with the use of DLT or similar technology; enhanced disclosure in prospectuses; enhanced requirements for those providing custody of Digital Wallets.
Bryan Stirewalt, the Chief Executive of the DFSA, remarked: “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 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 on the experience of other regulators who have taken cautious steps in this rapidly developing area, while addressing DIFC specific needs. We look forward to receiving public comments on these proposals.”
To download the paper, click here.