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.
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.
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.
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.
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.
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.
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