UAE’s SCA Approves New Regulation for Security and Commodity Tokens, What’s New?
In a new step toward modernizing financial markets, the United Arab Emirates’ Securities and Commodities Authority (SCA) has introduced a new regulation titled “Security Tokens and Commodity Tokens Contracts”, which reflects the country’s commitment to regulatory excellence, financial innovation, and investor protection.
The regulation establishes a comprehensive framework for issuing, trading, and settling digital tokens that represent either securities or commodities, underpinned by distributed ledger technology (DLT). It applies to all tokens issued or traded within the UAE’s onshore jurisdiction, under SCA oversight.
Clear Definitions and Scope
The regulation introduces formal classifications for security tokens (digital representations of financial instruments like equities or bonds) and commodity token contracts, which are tokenized representations of physical assets such as gold, oil, or other tradable commodities.
By formally defining these instruments, the regulation integrates them into the existing regulatory structure, bringing legal clarity to a previously ambiguous area.
Notably, the regulation excludes non-security real world assets (RWAs) such as tokenized gold units or real estate utility tokens unless structured as securities, leaving their regulation to VARA or other sector-specific bodies.
Technical and Operational Standards
A cornerstone of the regulation is the requirement that all tokenized securities and commodities be issued, transferred, and recorded via secure and auditable DLT systems. The regulation outlines technical standards related to cybersecurity, data protection, software reliability, and disaster recovery, aligned with global best practices.
Issuers must ensure that the underlying technology meets specific criteria, providing transparency, traceability, and integrity across all phases of a token’s lifecycle.
Importantly, Article 11 clarifies that both permissionless (public) and permissioned (private) blockchain networks can be used for token issuance and management. Issuers leveraging permissionless networks remain fully liable for compliance, while use of permissioned networks allows liability delegation to authorized service providers under contractual arrangements. This opens pathways for tokens to operate on public chains such as Ethereum or Polygon, in addition to private enterprise blockchains.
Licensed Trading and Settlement
The regulation mandates that all token trading and settlement occur through SCA-licensed exchanges, multilateral trading facilities (MTFs), or organized trading platforms. However, over-the-counter (OTC) trading is permitted in certain cases, such as for bond or sukuk tokens.
Transfer of tokens is governed by legally binding registration agreements, and settlement is protected under UAE netting laws, ensuring market stability and legal enforceability.
This settlement finality under UAE law is a key factor for institutional market confidence, as it guarantees enforceable clearing processes for tokenized trades.
Token Holder Rights and Pledging
The regulation also introduces new investor protections. Token holders can request court-ordered cancellations if they lose entitlement to a token’s underlying asset, with the possibility of receiving a refund or a newly issued token.
Furthermore, the framework explicitly allows for tokens to be pledged as collateral, with these arrangements clearly recorded on the ledger and governed by UAE law.
Issuer Responsibilities and Disclosures
Issuers must provide detailed disclosures, similar to a whitepaper model, covering everything from smart contract functionality to the technical specifications of the DLT infrastructure, as well as associated risks and recovery procedures. Failure to provide accurate information may trigger legal liability.
These disclosure requirements align with global tokenization standards, echoing Singapore MAS Project Guardian’s approach to transparency and market integrity.
This transparency requirement aims to build investor confidence and prevent market abuse in token offerings.
Strong Enforcement Powers
The SCA is granted expansive supervisory powers under the new regulation, including the ability to audit systems, access transaction data, impose penalties, suspend trading, and publicly identify non-compliant entities.
This strengthens regulatory oversight while ensuring market participants adhere to strict compliance and governance standards.
Tokenized Future Ahead
The SCA’s introduction of the new regulation is a critical milestone in the UAE’s financial innovation journey. By formally integrating tokenized securities and commodities within its mainstream capital markets framework, the UAE joins global leaders such as Singapore, Hong Kong, and the EU in paving the way for institutional-scale tokenization.
Undoubtedly, the framework lays the foundation for regulated tokenization, aligning with the country’s long-term strategy to build competitive, transparent, and sustainable capital markets. As these rules take effect, a key question remains: Will they drive rapid adoption of tokenized securities and commodities, or will operational and inter-regulatory complexities temper the momentum?
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