New regime for crypto tokens in Dubai International Financial Center

by Arthur · November 1, 2022

1 November 2022

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1. Introduction

In March 2022, the Dubai Financial Services Authority (“DFSA”) published consultation document No. 143 proposing to allow the provision of financial services in relation to “Crypto Tokens” in and from the Dubai International Financial Center (“DIFC“).

Following the end of the consultation period, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, the Ruler of Dubai, has passed legislation and the DFSA Board has made changes to the DFSA’s regulations, each of which will come into force on 1 November 2022.

The new Crypto Tokens regime reinforces the DFSA’s existing Investment Tokens regime which was introduced on 25 October 2021. We discussed the Investment Tokens regime in a previous client alert.[1]

The new DFSA Crypto Tokens regime is detailed. Significant changes have been made to many of the rules and modules that make up the DFSA Rulebook. In this client notice, we provide a summary of the most important changes that have been made.

2. Summary of the DFSA Crypto Tokens Regime

Joining date. The new rules come into force on 1 November 2022.
Definition of Crypto Tokens. The regime largely deals with Crypto Tokens (e.g. cryptocurrencies and stablecoins). The DFSA considers a token to be a crypto token if it: (a) is used, or intended to be used, as a medium of exchange or for payment or investment purposes; or (b) grants a right or interest in another token that meets the requirements of (a). However, certain tokens are not Crypto Tokens within the meaning of the Rules (ie “investment tokens”, NFTs, “utility tokens” and digital currencies issued by any government, public agency, central bank or other monetary authority).[2]
Only recognized crypto tokens to be used in DIFC. Generally, only crypto tokens that are “recognised” by the DFSA may be used in connection with a financial service, public offering or financial promotion in the DIFC.[3] These are referred to as “Recognized Crypto Tokens”. The DFSA must publish an initial list of recognized tokens within 30 days of 1 November 2022.[4] The DFSA must also publish notices when it recognizes other crypto tokens after an application for approval is made by a current or applicant authorized person or an issuer or developer of the crypto token.[5]
The use of privacy tokens/devices and algorithmic tokens is prohibited. Certain crypto tokens are prohibited from being used in connection with a financial service, public offering or financial promotion in the DIFC. Prohibited tokens are privacy tokens (eg, tokens with features to hide, anonymize, hide, or prevent tracking of transactions and individuals)[6] and Algorithmic Tokens (eg tokens that use algorithms to increase or decrease supply to stabilize or reduce price volatility).[7]
Mixing of regulated and unregulated activities related to Utility Tokens or NFTs is generally prohibited. A DFSA authorized firm cannot operate both a DFSA regulated crypto business and business related to NFTs and Utility Tokens (unless they provide custody).[8] The ban is intended to avoid any misunderstanding from users of a service that regulatory requirements for financial services apply to the unregulated part of the business. However, the ban does not cover the use of digital currencies issued by authorities, public agencies, central banks or other monetary authorities. Therefore, an authorized person can provide a service or conduct an activity involving such digital currency.
Money service providers limited to Fiat Crypto Tokens. DFSA authorized money service providers may only use DFSA recognized Fiat Crypto Tokens (eg fiat stablecoins recognized by the DFSA) in connection with their money service business.[9]
Crowdfunding operators. DFSA authorized crowdfunding operators cannot facilitate investment in Crypto Tokens through their platforms.[10]
Representative offices. DFSA authorized representative offices cannot market crypto tokens or financial services related to crypto tokens.[11]
Authorized company applicants must generally be DIFC companies and not branches. Generally, an applicant for a DFSA license to provide a financial service related to Crypto tokens must be a legal person incorporated under the DIFC Companies Act, except in very limited circumstances.[12]
Notification of important events affecting Krypto tokens. The DFSA is keen to be informed of important events or developments affecting crypto tokens. Every DFSA-authorised person carrying out a financial service related to a crypto-token must notify the DFSA immediately if it becomes aware of a material event or development which reasonably suggests that the crypto-token no longer meets the criteria to be a recognized crypto-token unless it is reasonable believing that the information is already widely available to the public.[13]
Provision of information about Crypto Tokens to clients. The new rules regulate the disclosure of information about Crypto Tokens to clients. For example, a DFSA-authorised firm must not provide a financial service related to a crypto-token to a person unless it has provided the person with a “key features document” containing detailed information about the crypto-token.[14] Prominent risk warnings must also be included on websites, marketing or educational materials and other communications related to Crypto Tokens.[15]
Retail customers. Significant protections have been introduced for retail customers (ie persons who are not “professional customers” or “market counterparties”) in addition to the overall duty to act in the best interests of a retail customer. For example:
- A DFSA authorized firm must not operate a financial service of “arranging trading in investments”, “dealing in investments as an agent”, “dealing in investments as a principal” or “operating an MHF” with or for a retail client, unless it the authorized firm has carried out a suitability assessment of the person and formed a reasonable opinion that the person has: (a) sufficient competence and expertise to understand the risks associated with trading crypto tokens or crypto token derivatives (as the case may be); and (b) the ability to absorb potentially significant losses resulting from trading in Crypto Tokens or Crypto Token derivatives (as the case may be).[16] Similar due diligence and care is required of DFSA-authorised firms who recommend a financial product or service to a client, or carry out a transaction on a discretionary basis for a client.[17]
- A DFSA Authorized Firm must: (a) not provide a “credit facility” to a retail customer in connection with the trading of Crypto Tokens; and (b) take reasonable steps to ensure that a Retail Customer does not use a credit card or third party credit facility to purchase a Crypto Token.[18]
- A DFSA authorized firm must not offer or give to a retail customer any incentive that influences, or is reasonably likely to influence, the retail customer to trade in a crypto token or crypto token derivative.[19] The DFSA states that incentives include bonus offers, gifts, discounts on fees (including volume-based discounts), trading credits or any form of reward in relation to opening a new account or trading a new type of crypto token or crypto token derivative offered to an existing or potential new private customer.
- A DFSA Authorized Firm must not offer or provide any facility or service that enables a retail customer to lend a Crypto Token to the Authorized Firm or to any other person.[20]
Funds Investing in Crypto Tokens. The DFSA has made a number of changes affecting funds investing in Crypto Tokens and the management, marketing and other financial services in relation to them in and from the DIFC. For example, a DIFC established fund can only invest in recognized crypto tokens and must be managed by a DFSA authorized fund manager and a DFSA authorized fund manager must not manage a non-DIFC established fund that invests in crypto tokens.[21]
Anti-money laundering and registration of issuers and service providers of NFTs and Utility Tokens as DNFBPs. The DFSA has updated its anti-money laundering rules to take Crypto Tokens into account. These rules apply to DFSA authorized persons and those registered with the DFSA as a Designated Non-Financial Business or Profession (DNFBP). Certain issuers and service providers of NFTs and Utility Tokens are required to be registered with the DFSA as a DNFBP and will be subject to the DFSA’s anti-money laundering rules.[22]
Six month transition period. The DFSA has introduced transitional rules that apply to each person who immediately before 1 November 2022: (a) was a DFSA authorized person; and (b) performs a relevant activity or service related to a crypto token. Such persons may continue to carry out certain activities or services related to crypto tokens for a transitional period of six months after November 1, 2022 without having to obtain the necessary change in authorization or comply with various detailed requirements related to crypto tokens.[23] After the six-month period, such persons should comply with the new rules or cease to conduct Crypto Token-related business. However, the DFSA makes clear that the Transitional Exemption does not exempt a DFSA Authorized Person from complying with certain key obligations during the Transitional Period in respect of the activities or services it carries out under the Transitional Arrangements (eg the DFSA’s Authorized Firms Principles, anti-money laundering requirements, to financial marketing, provisions on market abuse, provisions prohibiting fraudulent conduct (eg misleading, deceptive, fraudulent or dishonest conduct) and the prohibition relating to the use of privacy symbols).[24]

3. Concluding remarks

The new DFSA Crypto Token regime is an important step forward that reinforces the DFSA’s existing Investment Tokens regime which was introduced in 2021. With the new regime in place, the DFSA has completed its ambitious project to create a well-thought-out framework covering the range of ” crypto” assets.

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[1] Gibson Dunn Client Alert dated November 15, 2021 titled Dubai Financial Services Authority Moves into “Crypto” Space and Establishes Regulatory Framework for “Investment Tokens” (

[2] Rule A2.5.1 of the DFSA (General Module) rulebook.

[3] Rule 3A.2.1 of the DFSA Rulebook (General Module).

[4] Rule 3A.4.1(2) of the DFSA Rulebook (General Module).

[5] Rule 3A.3.7 of the DFSA Rulebook (General Module).

[6] Rule 3A.2.2 of the DFSA Rulebook (General Module).

[7] Rule 3A.2.3 of the DFSA Rulebook (General Module).

[8] Rule 3A.2.4 of the DFSA Rulebook (General Module).

[9] Rule 3A.2.5 of the DFSA Rulebook (General Module).

[10] Rule 2.2.10F of the DFSA Rulebook (General Module).

[11] Rule 2.26.1(4) of the DFSA Rulebook (General Module).

[12] Rule 7.2.2(7) of the DFSA Rulebook (General Module).

[13] Rule 11.10.21 of the DFSA Rulebook (General Module).

[14] Rule 15.5.1 of the DFSA Rulebook (Business Operations Module).

[15] Rule 15.5.3(2) of the DFSA Rulebook (Conduct of Business Module).

[16] Rule 15.6.2 of the DFSA Rulebook (Business Operations Module).

[17] Rule 3.4.2 of the DFSA Rulebook (Business Operations Module).

[18] Rule 15.6.3 of the DFSA Rulebook (Business Operations Module).

[19] Rule 15.6.4 of the DFSA Rulebook (Business Operations Module).

[20] Rule 15.6.5 of the DFSA Rulebook (Business Operations Module).

[21] DFSA Rulebook (Collective Investment Rules).

[22] DFSA Rulebook (Anti-Money Laundering, Counter-Terrorism Financing and Sanctions Module).

[23] Rule 10.5.1 of the DFSA Rulebook (General Module).

[24] Guide to Rule 10.5.1 of the DFSA Rulebook (General Module).

The following Gibson Dunn attorney prepared this client update: Hardeep Plahe.

Gibson Dunn attorneys are available to assist you in resolving any questions you may have regarding this development. If you would like to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Crypto Taskforce ([email protected]) or the Global Financial Regulatory team, including the following:

Hardeep Plahe – London and Dubai (+44 (0) 20 7071 4282, +971 (0) 4 318 4611, [email protected])
William R. Hallatt – Hong Kong (+852 2214 3836, [email protected])
Michelle M. Kirschner – London (+44 (0) 20 7071 4212, [email protected])
Jeffrey L. Steiner – Washington, DC (+1 202-887-3632, [email protected])

Lawyer advertising: The attached material has been prepared for general information purposes only and is not intended as legal advice.