These changes stem from the proposals outlined in Consultation Paper 153 – Updates to the Crypto Token regime published in January 2024, and mark a "significant step in refining and advancing the regulatory environment for Crypto Tokens in the Dubai International Financial Centre (DIFC)."

The amendments address the following areas:

Funds:

• The ability to offer Units of External and Foreign Funds investing in recognised crypto tokens
• The ability for Domestic Qualified Investor Funds to invest in unrecognised crypto tokens

Custody:

• Custody of crypto tokens
• Staking of crypto tokens

Financial crime:

• Financial crime (including the “travel rule”) compliance guidance
• Transaction monitoring and blockchain analysis

Recognition of crypto tokens:

• Recognition criteria for fiat crypto tokens (stablecoins)
• Fee for recognition of crypto tokens.

Virtual asset service providers licensed to carry out custody services may now, with specific additional approval from VARA, provide staking services to their customers from the same legal entity and without obtaining a separate licence for VA Management and Investment Services.

Additional licensing and supervision fees will be payable in connection with the provision of this additional service.

The regulatory framework is focused on the risks that each virtual asset activity presents to the market, and seeks to provide virtual asset service providers (VASPs) with a "clear framework of rules which apply to their particular operations and business models, while maintaining a baseline market standard of compliance across core regulatory domains."

VASPs that fulfil VARA's licensing requirements will be required to comply with four Compulsory Rulebooks:

Company Rulebook;

Compliance & Risk Management Rulebook;

Technology & Information Rulebook; and 

Market Conduct Rulebook.

Additionally, seven activity-specific Rulebooks have been developed to cater for risks associated with the provision of each virtual asset activity:

Advisory Services Rulebook;

Broker-Dealer Services Rulebook;

Custody Services Rulebook;

Exchange Services Rulebook;

Lending & Borrowing Services Rulebook;

Payments & Remittances Services Rulebook; and 

Management & Investment Services Rulebook.

VASPs will be required to comply with each activity Rulebook only if they are licensed by VARA to offer the activity.

The regime covers not only AML/CFT risks in respect of trading, clearing, holding or transferring crypto tokens, but also addressing risks relating to consumer protection, market integrity, custody and financial resources for service providers.

The DFSA has extended the scope of many current financial services activities, for example, advising, dealing, arranging, trading and custody, to allow firms in the DIFC to be able to provide products and services in relation to crypto tokens.

Firms, whether currently authorised by the DFSA or not, that want to provide financial services in relation to crypto tokens in or from the DIFC will have to obtain a license from the DFSA by first submitting a pre-application via the DFSA website. 

The DFSA proposed updating its regime to enable DLT-based activities.

Key changes proposed include:

• 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; and
• enhanced requirements for those providing custody of Digital Wallets.