The UAE based, Dubai Financial Services Authority (DFSA), regulatory arm of DIFC which recently amended its regulatory framework to include the Regulation of Investment Tokens has issued a statement explaining that it will only regulate investment Tokens, ( better known as Security tokens) and does not regulate any other types of cryptocurrencies, crypto assets, virtual assets, or digital assets (called Crypto Assets for the purposes of this statement) and that no firms are licensed or supervised by DFSA to provide financial services relating to Crypto Assets in or from the Dubai International Financial Centre (DIFC).
UAE DFSA the regulatory arm of DIFC ( Dubai International Financial Centre) also advised consumers and potential investors to exercise caution and undertake due diligence when undertaking investments in crypto assets. As per DFSA the risks include:
· Fraud – Criminals often use Crypto Assets and new technologies to perpetrate fraudulent schemes by misleading customers as to the nature of the product on offer and “take the money and run” shortly after the token is issued. Also, fraudsters may entice customers by touting Crypto Assets as an Investment or an “opportunity” to get into a cutting-edge space without any real benefit behind the offer.
· Volatility – Crypto Asset valuation and pricing can be difficult because of volatility and lack of real underlying assets, and holders may suffer significant losses if the price of the Crypto Asset drops quickly.
· Liquidity – Illiquid or flat market structures can make it hard to sell or trade Crypto Assets. It may also be difficult to exit the market and “cash out.”
· Information – Information may be missing, inaccurate, incomplete, and unclear with respect to the project and associated risks. Documents may be technical and require additional knowledge to understand the characteristics of the Crypto Assets and what the holder is (not) getting.
· Money Laundering – Crypto Asset platforms commonly rely on complex infrastructures utilising several entities (spanning across jurisdictions) to transfer funds and/or execute payments. This can mean that AML/CTF compliance, supervision and enforcement may not be effective.
DFSA asked consumers to check out the firms regulated by the DFSA, please check our Public Register.
The DFSA’s new regulations regarding Investment Tokens have been designed to address investor and consumer protection needs and market integrity risks, as well as AML/CFT risks, amongst others. The Investment Tokens framework applies to persons wishing to market, issue, trade or hold Investment Tokens in or from the DIFC and Authorised Firms wishing to undertake Financial Services relating to Investment Tokens, such as dealing in, advising on, or arranging transactions relating to, Investment Tokens, or managing discretionary portfolios or collective investment funds investing in Investment Tokens.