UAE Securities & Commodities Authority Consults on new Security Token Regime

The UAE Securities & Commodities Authority (SCA) has recently opened a consultation for its draft Directors’ Decision Concerning the Regulation of Security Tokens and Commodity Tokens Contracts (Security Token Regime). 

The draft Security Token Regime proposes to implement rules for the issuance and trading of security tokens and commodity token contracts which are developed on distributed ledger technology (DLT) in the Federal UAE jurisdiction (commonly called the “onshore”). 

When implemented, the proposed Security Token Regime will be a significant development for the regulation of security and commodity tokens after a period of uncertainty following the repeal of the SCA’s previous security token regime in 2023.

The SCA’s consultation on the draft Security Token Regime demonstrates a further development of the regulation of virtual assets in the UAE to enhance its position as a global hub for virtual assets.  Other key developments for virtual asset regulation in the UAE over the last 12 months include:

• The SCA and Dubai’s Virtual Assets Regulatory Authority (VARA) signed a cooperation agreement to ensure mechanisms are in place for mutual supervision of virtual asset service providers (VASPs) and the exchange of information and statistics between the two regulators. 
• The UAE Central Bank implemented Circular No. (2) of 2024 Concerning Payment Token Services Regulation to regulate payment token issuances, payment token conversions and payment token custody and transfer activities. The Payment Token Services Regulation specifically includes rules for central bank digital currencies and excludes activities that are conducted under the Retail Payment Services and Card Schemes Regulation and the Stored Value Facilities Regulation which are commonly applicable to tokens used for payments and in-game tokens (subject to the characteristics of the specific use case). 
• DIFC Law No. (2) of 2024 the Digital Assets Law was implemented in the Dubai International Financial Centre (DIFC) to establish the legal characteristics of digital assets for the purposes of property law and the way in which they can be controlled, transferred and dealt with.  Significant amendments to existing DIFC laws were also simultaneously implemented including replacing the 2005 DIFC Law of Security with DIFC Law No. (4) of 2024 the Law of Security which now aligns with the UNICTRAL’s Model Law on Secured Transactions and is applicable to digital assets. 
• The Dubai Financial Services Authority (DFSA) implemented the Crypto Token Regime in the DIFC and subsequently announced key amendments to this regime relating to funds, custody of crypto tokens, financial crime and recognition of fiat crypto tokens (stablecoins) for use in the DIFC. 
• The Financial Services Regulatory Authority (FSRA) published Consultation Paper No. 11 of 2024 to propose a range of amendments to the Digital Asset Regulatory Framework in the Abu Dhabi Global Market (ADGM). The proposed amendments include revising the process by which virtual assets are accepted for use within the ADGM and the criteria for determining whether fiat-referenced tokens issued by issuers outside of the ADGM should be accepted for use in the ADGM.

If you want more information about the regulation of tokens and virtual assets in the UAE, please reach out to our local experts Gregory Man and Jessica White.