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Dubai’s financial regulator has announced a ban on “privacy currencies” within the Dubai International Financial Center (DIFC), citing risks of complying with anti-money laundering (AML) requirements and complying with sanctions, as part of a broad update to the cryptocurrency regulatory framework that also includes redefining stablecoins and changing their approval mechanisms.
The updated regulatory framework, which came into effect on January 12, reflects the new direction of the Dubai Financial Services Authority (DFSA) to focus less on individual certification of each asset in exchange for tightening the application of global compliance standards.
The ban includes the use of privacy coins through trading, promotions, funds and derivatives activities within or from the DIFC.
This has to do with a return of trader interest in some of these currencies.
The new rules also ban regulated firms from using or providing concealment tools and any means of obscuring transaction details.
Elizabeth Wallace, deputy director of policy and legal affairs at the DFSA, said the decision was necessary to maintain Dubai’s compliance with international standards, explaining that the characteristics of these currencies hide and obscure the history of transactions and their holders, making compliance with Financial Action Task Force (FATF) requirements nearly impossible.
She noted that FATF requires the ability to identify all parties to a transaction, including the sender and beneficiary.
On stablecoins, the DFSA tightened the definition of crypto tokens pegged to fiat currencies, limiting them to digital tokens pegged to fiat currencies and backed by high-quality, liquid assets capable of meeting redemption requests even in times of stress.
She believes that algorithmic stablecoins have less transparency regarding their working and recovery mechanisms, explaining that some fast-growing models will not be classified as stablecoins within the DIFC framework, but will instead be treated as crypto tokens without automatic bans.
The rules will also shift the responsibility for approving assets from the approval list to the companies themselves, as licensed entities will have to assess the suitability of the digital tokens they offer, document and continually review this to reflect a more mature and responsible market.
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