The DIFC Crypto Business
Is an Onshore Financial Centre strategically located between the East and West, which provides a secure and efficient platform for businesses and financial institutions to reach into and out of the emerging markets of the region.
The Dubai Financial Services Authority (DFSA) recently amended its regulatory framework to include the Regulation of Investment Tokens.Other than Investment Tokens, the DFSA reiterates that it does not regulate any other types of cryptocurrencies, crypto assets, virtual assets, or digital assets (called Crypto Assets for the purposes of this statement) and that no firms are licensed or supervised by DFSA to provide financial services relating to Crypto Assets in or from the Dubai International Financial Centre (DIFC).
Crypto Assets is a broad term and covers many types of products. The most popular, and well-known types of Crypto Assets include cryptocurrencies such as Bitcoin, Ether and Litecoin. Crypto Assets are private digital assets that depend primarily on cryptography and Distributed Ledger Technology (DLT) or similar technology.
The DFSA advises consumers and potential investors to exercise caution and undertake due diligence to understand the risks involved when buying Crypto Assets.
Criminals often use Crypto Assets and new technologies to perpetrate fraudulent schemes by misleading customers as to the nature of the product on offer and “take the money and run” shortly after the token is issued. Also, fraudsters may entice customers by touting Crypto Assets as an Investment or an “opportunity” to get into a cutting-edge space without any real benefit behind the offer.
Crypto Asset valuation and pricing can be difficult because of volatility and lack of real underlying assets, and holders may suffer significant losses if the price of the Crypto Asset drops quickly.
Illiquid or flat market structures can make it hard to sell or trade Crypto Assets. It may also be difficult to exit the market and “cash out.”
Information may be missing, inaccurate, incomplete, and unclear with respect to the project and associated risks. Documents may be technical and require additional knowledge to understand the characteristics of the Crypto Assets and what the holder is (not) getting.
Crypto Asset platforms commonly rely on complex infrastructures utilizing several entities (spanning across jurisdictions) to transfer funds and/or execute payments. This can mean that AML/CTF compliance, supervision and enforcement may not be effective.
Consumers should exercise caution when dealing with Crypto Asset entities, unless they are sure that the entities are properly regulated, in order to be protected against financial misconduct or wrongdoing.
Following extensive consultation, a regime is now in place for recognized crypto tokens, including Fiat Crypto tokens. Financial Services or activities can only be undertaken with a Crypto Token that is recognized by the DFSA.
All firms who are currently providing, or want to provide, Financial Services in relation to crypto tokens in or from DIFC will need to obtain the appropriate license from the DFSA. To obtain this, firms will first need to submit a pre-application to the DFSA via the DFSA website. This includes existing DFSA Authorized Firms that wish to obtain a variation of their license to include crypto tokens.