DFSA Consults On Major Overhaul Of The DIFC Crypto Token Regime (CP168)

The DFSA has issued Consultation Paper 168 ("CP 168") proposing material enhancements to the DIFC crypto token framework. The headline change is a positive move away from the DFSA maintaining a central list of Recognised Crypto Tokens towards a firm-led 'Suitable Crypto Token' regime (excluding fiat tokens). Firms would be responsible for assessing and continuously monitoring the suitability of tokens they use, listing those tokens on their websites, and reporting activity to the DFSA. Fiat crypto tokens (stablecoins) remain subject to DFSA-led suitability, and prohibited tokens remain unchanged (i.e., privacy tokens/devices and algorithmic tokens are prohibited).

Key proposals in CP 168

1. Suitability of Crypto Tokens (excluding fiat) – Shift responsibility to firms to determine, evidence, and publish token suitability.
2. Fiat Crypto Tokens – DFSA retains suitability determinations and will publish a new Policy Statement to set out how the DFSA will assess the suitability of fiat tokens.
3. Recognised Jurisdictions – Remove "Recognised Jurisdictions" provisions for crypto tokens, potentially broadening acceptable home jurisdictions.
4. Collective Investment Funds – Remove the thresholds and restrictions applied to funds investing directly or indirectly in crypto tokens.
5. Conduct of Business – Remove (1) the obligation to provide Key Features Documents when arranging or providing custody for crypto tokens (other custody disclosures still apply), and (2) the limitations on the types of crypto tokens that can be included in the Net Asset Test.
6. Fees – Delete the application fee for recognition of a crypto token by DFSA, as DFSA recognition for non-fiat tokens will cease.
7. Reporting – Introduce a monthly Crypto Token information return via the DFSA e-portal and add this return to the Fixed Penalty Notice regime for late/non-filing.
8. Transitional provisions – Three-month transition from commencement: non-fiat tokens previously "Recognised" will be deemed suitable for that period unless a significant adverse event arises.

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