The Dubai Financial Services Authority (DFSA), which oversees financial firms operating from the Dubai International Financial Centre (DIFC), is moving to regulate the security token space and is seeking public consultation on a proposed framework.
The proposed framework will bring clarity to the blockchain-based services industry as the regulator wants to allow companies to offer security tokens to the public. It also touched the prospect of digital asset custodian services for holding security tokens.
The regulator is mostly focusing on quality control of the technologies behind the security tokens, addressing the risks of using distributed ledger technology (DLT). Additionally, the proposed Framework for Regulating Security Tokens will cover cryptocurrency derivatives, the regulator of the special economic zone explained.
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Securities tokens are seen as one of the key areas where blockchain can help the existing financial market. The DFSA is already gatekeeping the much-sought entry point to the Middle Eastern market, and its interest in security tokens might help the jurisdiction to dominate the regional financial markets.
Commenting on the prospect, DFSA Chief Executive, Bryan Stirewalt 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.”
Similar to the DFSA, other financial regulators are looking at security tokens as a massive opportunity. Last year, Mauritius published a framework to regulate security tokens and started to license companies.
“Our proposals promote and facilitate innovation, while also protecting consumers, addressing market integrity and mitigating ML/FT and other risks. We have drawn on the experience of other regulators who have taken cautious steps in this rapidly developing area while addressing DIFC specific needs. We look forward to receiving public comments on these proposals,” Stirewalt added.