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UAE to allow issuance of dirham-backed stablecoins
The Board of Directors of the Central Bank of the United Arab Emirates (CBUAE) has approved a new stablecoin supervision and licensing system.
The decision came during a meeting held in Abu Dhabiwhere the council also discussed projects under the government’s Financial Infrastructure Transformation (FIT) programme.
During the meeting, the council approved the issuance of regulations for the supervision and licensing of stablecoins. Kokila Alagh, founder of KARM Legal Consultants, told local media Unlock Blockchain that the new regulations clarify the issuance, licensing and supervision of dirham-backed payment tokens.
According to Alagh, these tokens must be backed by UAE dirhams and cannot be linked to other currencies, digital assets or algorithms. Merchants and service providers can only accept dirham-backed tokens.
While specific details of the meeting were not disclosed, topics included key projects under the FIT program. On February 13, the CBUAE announced plans to issue a central bank digital currency (CBDC) as part of the FIT initiative.
The Dubai Financial Services Authority (DFSA) announced changes to its cryptocurrency token regime this week to advance the regulatory framework for tokens within the Special Economic Zone in the United Arab Emirates.
The DFSA has revised its crypto token regime to incorporate the changes proposed in Consultation Paper 153, published in January 2024. The changes cover key areas such as the regulation of funds investing in crypto tokens and the recognition process for these tokens.
The changes impact the ability of external and foreign funds to offer shares in recognized crypto tokens. Previously, the DFSA restricted fund activities involving cryptographic tokens. However, feedback from fund and asset managers indicated that existing regulations were too stringent.
Additionally, the changes now allow for home use qualified investor funds invest in unrecognized tokens, provided that the exposure does not exceed 10% of the fund’s gross asset value (GAV). Until now, the DFSA had only recognized five crypto tokens: Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP (XRP) and Toncoin (TON).
Previously, the fee for requesting token recognition was $10,000 per token, which many companies considered excessively high, particularly for those seeking recognition for multiple tokens. In response to this feedback, the DFSA reduced the fee to $5,000 and introduced additional recognition criteria for stablecoins, which are cryptographic tokens pegged to fiat currencies.
The DFSA said these changes represent nothing more lenient regulatory attitude. Instead, they provide flexibility to recognize fiat-pegged crypto tokens issued in jurisdictions with comparable regulation.