UAE Trends and Developments Contributed by: Stefan Mrozinski, Gabrielle Margerison (nee Lowe) and Arnold Krutilins, White & Case LLP
The Payment Token Services Regulation defines a payment token as “a virtual asset that main- tains a stable value by referencing the value of the fiat currency it is denominated in or another payment token denominated in the same fiat cur - rency” . The Payment Token Services Regulation effectively brings stablecoins within the UAE’s regulatory perimeter for the first time, represent - ing an expansion of the CBUAE’s digital asset- related framework. This development also aligns with the global trend towards more enhanced regulation of digital assets, particularly those designed to function as methods of payment. Under the Payment Token Services Regula - tion, the CBUAE has drawn a clear distinction between dirham-backed stablecoins and those backed by foreign currencies. This regulatory delineation creates a complex compliance landscape for entities carrying out stablecoin- related activities in Dubai as, while the VARA generally governs stablecoin activities in Dubai, the CBUAE exclusively regulates stablecoins pegged to the dirham. This means that an entity seeking to operate with stablecoins in Dubai may require multiple licences: one from the VARA for general stablecoin operations and an additional licence from the CBUAE if they intend to issue or work with dirham-backed stablecoins. This dual- licensing requirement reflects the UAE’s care - ful approach to monetary sovereignty while still embracing innovation in the digital assets space. Adding to this complexity, the SCA recently launched a public consultation on its draft Regulation of Security Tokens and Commodity Tokens Contracts. The draft Regulation of Secu - rity Tokens and Commodity Tokens Contracts proposes to govern security and commodity tokens within the UAE and sets out stringent requirements on issuers of security tokens and commodity token contracts. With the SCA’s draft
Regulation of Security Tokens and Commodity Tokens Contracts joining the CBUAE’s and the VARA’s frameworks, this creates a further layer of regulatory complexity in the UAE’s digital assets landscape, potentially requiring entities to navigate multiple licensing regimes depending on the specific token types and activities they undertake. The introduction of dirham-backed stablecoins facilitates the tokenisation of traditional assets priced in dirhams and addresses issues related to the conversion of cryptocurrency to fiat cur - rency and vice versa. More generally, the Pay - ment Token Services Regulation represents a significant advancement that encourage banks and financial institutions, which were previously hesitant about the crypto space, to engage more actively. The Sandbox Conditions Regulation In June 2024, the CBUAE also issued the Sandbox Conditions Regulation. The Sandbox Conditions Regulation sets out the conditions established by the CBUAE for exempting per - sons wishing to test innovative business models, products and services from the requirement to obtain a licence for a duration determined by the CBUAE. The purpose of the regulatory sandbox is to help market participants work out how to best structure their businesses in a regulatory compliant manner whilst having regular engage - ment with the CBUAE and meeting minimum requirements established by the CBUAE. The regulatory sandbox is not available for appli - cants wishing to conduct the following activities: • taking deposits of all types; • carrying out insurance activities in the UAE; and
935 CHAMBERS.COM
Powered by FlippingBook