The Dubai Financial Services Authority (DFSA) is requesting feedback on its proposed regulation of security tokens.
The DFSA has published its “Framework for Regulating Security Tokens” which includes derivatives as well and will be open to public consultation for a period of 30 days.
The regulator has actively engaged with key stakeholders in Dubai and around the world on various Distributed Ledger Technology (DLT) applications.
DFSA has proposed to update its 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.
DFSA said in a statement that allowing direct access is a significant shift from the current intermediated model of trading in markets.
Its proposals include appropriate safeguards to tackle investor protection needs and misconduct risks, whilst also addressing market integrity, financial stability and, crucially, money laundering and terrorism financing threats in the direct access environment.
DFSA will soon issue proposals for other types of tokens that are not security tokens, such as exchange tokens and utility tokens, later in 2021.
Bryan Stirewalt, the Chief Executive of the DFSA 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.”
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