The Dubai Financial Services Authority (DFSA) Consultation on Crypto Tokens

Date 21/04/2022
7 minutes to read
Amrita Srivastava

Amrita Srivastava shares an in-depth overview of the much-anticipated Consultation Paper No. 143 (CP 143) released by the Dubai Financial Services Authority (DFSA) which sets out its plan for regulatory framework covering crypto tokens for public consultation, defining the categories and DFSA’s approach on it.


DFSA Consultation No. 143: Crypto Tokens

On 8 March 2022, the Dubai Financial Services Authority (DFSA) published Consultation Paper No. 143 (CP 143), setting out its proposals for the regulatory framework overseeing crypto tokens. CP143 is a follow up on the DFSA’s consultation paper last year on the regulation of investment tokens (CP138).

The previously adopted definition of a token is a “cryptographically secured digital representation of value, rights or obligations, which may be issued, transferred and stored electronically, using Distributed Ledger Technology or other similar technology”. In an effort to future proof the DFSA’s regulatory approach, CP143 proposes to build on and broaden the definition further so that it is a token “that is used, or intended to be used, as a medium of exchange or for payment or investment purposes but excludes an Investment Token, or any other type of investment, or an Exclude Token.”

CP 143 closes for public consultation and comments on 6 May 2022.


Key Proposals

CP 143 defines the categories of Asset Classes and DFSA’s approach to each Asset Class as follows:

Asset Class



Accepted Tokens



- Crypto Token

An Authorised Firm can provide a Financial Service in or from the DIFC, in relation to a Crypto Token or a Crypto Token Derivative, only if the token is an ‘Accepted Crypto Token’ which is determined by the 6 guiding parameters (set out below*)

The “Accepted Crypto Token Approach” limiting the type and numbers of Crypto Tokens that can be used, and this approach is benchmarked against other regulators like FSRA (the ADGM Financial Services Regulatory Authority), the Central Bank of Bahrain and the New York Department for Financial Services

Excluded Tokens



- Utility Token

A Utility Token is a digital token of cryptocurrency issued to fund development of the crypto currency and can be used to purchase goods or service offered by the issuer within a specific ecosystem. A utility token is unique to its ecosystem

The tokens used within a confined non-financial ecosystem would be classified as Utility Tokens

However, in the future Utility Tokens may come within the DFSA's regulatory purview, where they take on characteristics of a Hybrid Utility Token, being used, or intended to be used, as a medium of exchange or for payment or investment purpose and/or uses beyond the issuers platform

- Non-Fungible Tokens (NFTs)                                                    

NFTs are unique cryptographic tokens that exist on a blockchain and cannot be replicated. NFTs can represent real-world items like artwork and real estate

"Tokenising" these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the possibility of fraud occurring in the process. NFTs can also function to represent individuals' identities, property rights, and more

The DFSA proposes to exclude NFTs from the current proposal as there are no financial services being provided, although this exemption depends on the characteristic & function of the NFT

Having said that, the DFSA is considering whether it should designate NFT creators and service providers as a Designated Non-financial Business and Profession (DNFBP) in the DIFC. This would subject them to Anti-Money Laundering and Combatting the Financing of Terrorism ((AML)/CFT) requirements, including having to carry out Business Risk Assessments and Customer Due Diligence (CDD)

- Central Bank Digital Currencies

Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country's fiat currency

Central bank digital currencies are not included in the scope of proposals as the DFSA does not currently intend to regulate fiat currency

Prohibited Tokens



- Privacy Tokens and Devices

Privacy coins appear very similar to coins like bitcoin. They run on blockchains – decentralised ledgers – and are maintained by a network of anonymous validators

The DFSA bans the use of Privacy Tokens because these tokens preserve anonymity by obscuring the flow of money across their networks

- Algorithmic Tokens

Algorithmic stable coins are crypto tokens that use price stabilisation algorithms to keep the value of an asset. They increase the supply of tokens when the value goes up and reduce supply when it goes down

Algorithmic tokens are inherently fragile. These uncollateralised digital assets attempt to peg the price of a reference asset using financial engineering, algorithms, and market incentives, hence are deemed unstable and exist in a state of perpetual vulnerability. The lack of transparency may not enable the regulator to supervise effectively

Accepted Crypto Tokens

The DFSA would determine if the Crypto Token is acceptable or not, on the basis of the following proposed guiding parameters*:

  • If the regulatory status of the Crypto Token in other jurisdictions is green listed, has any history of regulatory examination, and adequacy of governance and system & controls
  • Size, liquidity, and volatility of the market for the Crypto Token, which includes total supply of the Token and the determining factors for Crypto Token’s demand & supply
  • Adequate transparency of the Crypto Token including the technology, protocols, and significant stakeholders of the Crypto Token
  • Adequacy and suitability of the technology used
  • If the risk associated with the Crypto Token is manageable and/or mitigable
  • A Crypto Token that purports to be used as a fiat Crypto Token, should have adequate arrangements to ensure that the reserves are in place and protected. It should have the ability to maintain a stable price and the Tokens are used only in connection with a financial service in and from the DIFC.

Other key proposals contained in the CP 143 are summarised below:

  • The promotion of Crypto Tokens is subject to compliance with the financial promotions requirements provided in the DFSA General Module rulebook, relating to marketing of financial products (the definition of financial products is to be revised to include crypto currencies). It will be prohibited to make a financial promotion in respect to Crypto Tokens that are prohibited – Privacy Tokens and Algorithmic Tokens.
  • Only subsidiaries of foreign financial institutions will be permitted to offer financial services in relation to Accepted Crypto Tokens in or from the DIFC.  Branches, including representative offices will not be permitted to carry out any financial services in respect of crypto.
  • The DFSA proposes not to allow operators of crowdfunding platforms to provide any products or services involving any Crypto Tokens at the moment. However, the intention is to reconsider the position at the time of the planned review of the crowdfunding regime.
  • The existing DIFC based firms seeking to provide services relating to Crypto Tokens in and from the DIFC, would need to apply to the DFSA for a license variation.
  • The DFSA is not intending to allow existing money services firms in the DIFC, to provide services relating to both fiat currency and Crypto Tokens. The money services firms will be permitted to use blockchain for limited purposes only, namely the use of technology for a back-office operation, without exposing the clients to the Token.
  • The DFSA proposes not to allow firms to provide services for both Accepted Crypto Token and Excluded Tokens from the same entity, this is to avoid the risk of confusing Excluded Tokens for Accepted Crypto Tokens, only the latter of which are regulated.

Financial Services

The DFSA proposes that the following services in relation to Crypto Tokens will be permissible:

  • Dealing in investments as principal
  • Dealing in investments as an agent
  • Arranging deals in investments
  • Managing assets
  • Advising on financial products
  • Operating an exchange
  • Providing custody
  • Arranging custody
  • Operating a clearing house
  • Operating an alternative trading system

Key Interested Parties

CP 143 will be of interest to Authorized Market Institutions (AMI) wishing to admit Crypto Tokens to trading, or clearing or settlement, on their facilities. It will also interest operators of Alternative Trading Systems (ATS) wishing to trade Crypto Tokens on their facilities; digital wallet service providers who safeguard and administer Crypto Tokens; Authorised Firms wishing to undertake other financial services relating to Crypto Tokens, such as dealing in, advising on, or arranging transactions relating to Crypto Tokens, or managing discretionary portfolios or collective investment funds investing in Crypto Tokens; as well as issuers of crypto tokens, technology supporters.


How can Equiom help?

Equiom has a wealth of knowledge and experience in helping firms with their regulated, and non-regulated, license applications in both the DIFC and ADGM. Our experienced team of compliance professionals can advise you on how best to navigate the DFSA’s/FRSA’s regulatory framework whilst setting up. As well as provide outsourced Compliance Officer and MLRO services to ensure you have ready access to a team of experienced professionals.

Please get in touch with Amrita Srivastava or call +971 4 446 3900, for a more detailed discussion on how the CP 143 proposals may impact your business and how we can help guide your firm through the process of setting up in the UAE.




This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.
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