Security Token Regulations Proposed By Dubai’s Financial Regulator


The Dubai financial watchdog, the Dubai Financial Services Authority (DFSA) has recently proposed a new policy framework. This framework will target the security tokens sector, one that has been growing rapidly for some time now. Through this framework, the watchdog plans on promoting security token growth, particularly those that have the potential to transform the financial services industry of the city at large.

New Proposal For The Public

Through the publishing of Consultation Paper Number 138, titled “Regulations of Security Tokens” on the 29th of March, 2021, the DFSA is calling for the public to participate in this consultation paper throughout the next 30 days. Within the document stands various provisions that relate to the public offering of security tokens, as well as their various admissions to trading facilities at large. Should this new legislation be implemented, direct payments can be processed in security tokens by companies from various prospective clients.

According to DFSA, the proposals were developed in such a way as to protect the consumers and to facilitate and promote innovation at the same time. Further issues the proposal was aimed to address were to mitigate ML/FT, as well as increasing the overall market integrity, among other things. The DFSA stated that it had made use of the experiences of other regulators, who had taken cautious steps forward in this area and addressed DIFC at the same time. The watchdog also declared that it was eager to hear the comments of the people about this new proposal.

SEC’s Hester Peirce Looking To The Future

Hester Peirce Stands as the Commissioner for the US watchdog, the Securities and Exchange Commission. Peirce had taken part in a fireside chat during the Security Token Summit, which occurred on the 25th of March, 2021. In the discussions, Peirce answered a number of questions regarding digital securities, security tokens, as well as various regulatory guidelines. Furthermore, she voiced her opinion on the looming prospect of replacing traditional equities with digitized versions in the future.

Many Parts Of The Proposal

Now, this proposal paper’s proposed changes have a few interesting additions to it. A few examples would be allowing security token trading facilities to gain direct access to members, retail clients included. Another key point of the proposal is the offering of an enhancement on custody provider requirements, an increase in the disclosure in the prospectus, as well as greater control requirements.

This all comes in a bid to try and address the various risks that decentralized ledger technology (DLT) inherently brings along with it. With this proposal, the DFSA is aiming to address the needed investor protection as well as the risks of misconduct. Further improvements would be on the overall financial stability and market integrity, due to the enhanced measures put in to combat terrorism financing and money laundering.

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