Dubai Launches Tokenization Sandbox

The Dubai Financial Services Authority (DFSA) has launched a tokenization sandbox and is accepting expressions of interest through to April 24. The DFSA is the regulator for the Dubai International Finance Centre (DIFC).  Applicants could be involved in the issuance, trading, holding, or settlement of tokenized assets. Cryptocurrencies are excluded along with stablecoins. The financial instruments that are tokenized should be similar to conventional securities including equities, bonds, sukuk and collective investment fund units.

As with most sandboxes, the aim is to relax certain regulatory requirements under the supervision of the regulator. Hence, it’s open to companies whether or not they are already DIFC-regulated. If accepted they will be granted a special Innovation Testing License (ITL) that will last from six to twelve months. It appears that the rule relaxations might be assessed on a case-by-case basis. At the end of the ITL period, the entity either will be awarded a full DIFC license or the ITL license will be terminated.

The program supports live market testing and helps firms to clarify the tokenization requirements in the DIFC. Tokenization rules were introduced in the DIFC in 2021. They support trading by consumers without intermediaries but access must be with permission, although this doesn’t necessarily rule out the use of a public blockchain.  Tokenization regulations include some additional requirements compared to conventional securities, including informing the DFSA regarding custody arrangements and technology audits.