UAE's SCA Opens Consultation on Fractionalized Bonds & Sukuk to Broaden Market Access

The UAE Securities and Commodities Authority (SCA) is seeking public feedback on a proposed amendment to its Rulebook that would formally permit the sale and purchase of fractionalized bonds and sukuk.

Released on 4 June 2025, the public consultation marks a pivotal step in the country’s drive to enhance retail and digital investor access to financial markets. If enacted, the regulation would give financial product dealers a framework to conduct these fractional transactions—laying the groundwork for broader inclusion and innovation in the UAE's capital markets.

This move aligns with the UAE’s broader strategy to modernize financial regulation, particularly around tokenized assets, fintech platforms, and digital financial products.

Key Provisions of the Proposed Amendment

The proposed clause would be added to Article (2) of Section 3 (Business Conduct) and outlines key requirements for financial product dealers facilitating fractionalized bond/sukuk transactions. These include:

The new clause would be added to Article (2) of Section 3 (Business Conduct) and outlines key responsibilities for financial product dealers facilitating fractionalized bond or sukuk transactions. These include:

• Execution of written agreements with investors, covering the sales mechanism, investor classification, rights and fees, pricing methodology, exit strategy, and risk disclosures.
• Notification requirements for material changes to the structure, issuer, or terms of the underlying bond/sukuk.
• Compliance with applicable AML/CFT, conflict of interest, and investor protection obligations.
• SCA’s discretionary power to suspend dealings in fractional instruments where deemed necessary to protect investor interests.

Initial Analysis and Key Issues for Industry Consideration

A preliminary review of the proposal, benchmarked against international practices in tokenized or fractional fixed-income products, highlights several technical issues that merit further consideration.

1. Legal Nature of the Fractional Interest

The proposed framework does not clarify whether the fractional interest constitutes a contractual entitlement, a beneficial interest held via trust, or a tokenized security. This has significant implications for enforceability, bankruptcy remoteness, and investor rights.

In the UK, platforms such as WiseAlpha operate via trust structures that hold the underlying bonds on behalf of fractional investors. In the US, platforms like Securitize issue tokenized notes governed under Reg D or Reg A+ exemptions, where the legal form is clearly defined.

2. Licensing Scope and Platform Eligibility

The draft does not specify which categories of regulated entities may facilitate fractionalized offerings. It is unclear whether Virtual Asset Platform Operators (VAPOs) licensed under other regimes would qualify, nor whether cross-border licensed platforms may participate.