DFSA to Start Public Consultation on Security Tokens

​The Dubai Financial Services Authority(DFSA), the independent regulator of financial services conducted in or from the DIFC, Monday published its “Framework for Regulating Security Tokens” for public consultation for a period of 30 days.

The DFSA is proposing a comprehensive and innovative regulatory framework for regulating Security Tokens, a new and growing area of interest for many industry participants. The proposed framework also touched the prospect of digital asset custodian services for holding security tokens.

According to the regulator, it will propose updating 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; and

·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.

Some of 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; and

· enhanced requirements for those providing custody of Digital Wallets.

In addition, the agency said it will issue proposals for other types of tokens such as exchange tokens and utility tokens later in 2021.

​Commenting on the prospect, 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 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."