The Payment Token Services Regulation (PTSR) issued by the Central Bank of the UAE (CBUAE) in 2024 provides a comprehensive framework for regulating payment tokens, such as stablecoins, within the UAE. This regulation is part of the UAE's broader effort to establish itself as a global leader in financial innovation while ensuring a secure and regulated environment for digital financial services.
The PTSR sets out the requirements determined by the CBUAE for granting a license or registration for the provision of Payment Token Services, which are digital payment services in the UAE and comprise three categories, namely Payment Token Issuance, Payment Token Conversion and Payment Token Custody and Transfer. Article 2 of the PTSR states that no Person shall perform any Payment Token Service within the UAE or directed to Persons in the UAE, unless such Person is licensed by the CBUAE to perform such Payment Token Service.
Key Highlights of the PTSR:
1. Definition of Payment Token:
A Payment Token is defined as “a Virtual Asset which purports to maintain a stable value by referencing the value of (a) the same Fiat Currency as the Payment Token is denominated in; or (b) another Payment Token also denominated in the same Fiat Currency”.
Two types are specified:
- Dirham Payment Tokens: Tokens pegged to or denominated in the UAE Dirham.
- Foreign Payment Tokens: Tokens pegged to or denominated in foreign currencies
2. Licensing Requirements:
Entities offering Payment Token Services, such as issuance, conversion, custody, or transfer, must obtain appropriate licenses from the CBUAE.
Licensing applies to entities operating within the UAE, including its free zones, but excludes financial free zones like the DIFC and the ADGM.
3. Scope of Regulation:
The PTSR regulates the issuance, custody, and transfer of payment tokens, ensuring that these services are performed by authorized entities.
Certain types of Payment Tokens are exempted from the scope of the PTSR, including Payment Tokens used for certain reward schemes and bonus point schemes; and Payment Tokens that can only be used as a means of payment for non-financial goods or services provided by the Payment Token Issuer.
4. Consumer Protection:
A number of provisions aimed at consumer protection are set out in the PTSR, including requirements on firms to comply with Consumer Protection Regulation. Measures include regulatory capital requirements, AML/CTF requirements, protection of payment and customer data, risk management and control system requirements and technology risk and IT security requirements.
The PTSR reflects the UAE's commitment to fostering innovation in the financial sector while ensuring a regulated, transparent, and secure ecosystem for digital assets and payment solutions.