The DFSA recently updated its crypto token regime following the ending of the consultation period on a number of proposed legislative changes, set out in several consultation papers. The recent amendments, effective from 3 June 2024, update the DFSA’s rulebooks in relation to funds, custody, staking and the recognition of crypto tokens in the DIFC.
The latest updates now enable: (i) the offering of units of Foreign Funds to invest in crypto tokens recognised by the DFSA; and (ii) the ability of Qualified Investor Funds to invest in unrecognised crypto tokens - subject to certain requirements. There are also additional restrictions on an External Fund that invests in Crypto Tokens. Pursuant to the updates to the DFSA’s Collective Investment Rules, a fund manager must not manage an External Fund that invests in Crypto Tokens unless: (a) the investment in the Crypto Tokens is limited to Crypto Tokens recognised by the DFSA and does not exceed 20% of the gross asset value of the External Fund; and (b) the External Fund: (i) has its Units offered to persons only by way of a Private Placement; (ii) has its Units offered to persons only who meet the criteria to be classified as Professional Clients; and (iii) requires an initial subscription of at least US$50,000 to be paid by a person to become a Unitholder in that Fund.
The DFSA has also updated its Conduct of Business rules in relation to providing Crypto Token custody services, whereby, among other requirements, additional quarterly updates are required to be made to the DFSA by Authorised Persons providing such custody services.
The rules regarding staking of Crypto Token has been updated whereby an Authorised Firm is now permitted to offer or provide a staking service only if the lending of the Crypto Token is for use in proof-of-stake transactions. In addition, staking services may only be offered or provided by Authorised Firms to Professional Clients or Market Counterparties subject to additional requirements.
The DFSA has also recognised stablecoins under the definition of ‘Fiat Crypto Tokens’ and introduced new recognition criteria for stablecoins. Such criteria includes: (i) the stablecoin maintains stable price relative to the fiat currency it references; (ii) the stablecoin is denominated in the reference currency; and (iii) the reserves for the stablecoin are valued daily. The DFSA have confirmed that Algorithmic Tokens remain prohibited for use in or from the DIFC.
The recent amendments to the DFSA’s rulebooks demonstrates the DFSA’s aim to continually evolve in line with global best practice and standards.