- Rules focus on ‘stablecoins’
- Digital assets pegged to dirham
- CBUAE will issue licences
The UAE has taken steps towards regulating its payments sector with the introduction of Payment Token Services Regulation in an attempt to push out fraudulent crypto companies and attract legitimate businesses.
The new regulations introduced by the Central Bank of the UAE (CBUAE) focus heavily on stablecoins – digital currencies pegged to a real-world asset such as the UAE dirham.
This stands in stark contrast to a previous lack of clear guidelines, which “led to problems and frauds,” according to Raymond Kisswany, partner at Davidson & Co Law Firm in Dubai.
“The UAE has chosen a path of regulation over outright bans,” Kisswany said.
Previously, non-dirham backed stablecoins were overseen by Dubai’s Virtual Assets Regulatory Authority, the local crypto-regulator established in 2022.
Now, the CBUAE will take control of issuing licences and regulating all dirham-backed stablecoins.
“Crypto businesses won’t need to leave the country if they understand the [new] process,” Kisswany said.
The CBUAE rulebook states that payment tokens in the country must be backed by UAE dirhams and cannot be linked to other currencies.
“These regulations are designed to ensure a secure and efficient digital payment ecosystem,” Kisswany said.
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The stablecoin licensing regime will also attract established financial institutions, such as banks, to enter the crypto space, according to Arushi Goel, policy lead at Chainalysis, a US-based blockchain research company.
“Stablecoin regulations could pave the way for integration with existing financial services and payment systems,” she said.
The regulations do not apply to retail payment services or the regulation of “stored value facilities” such as debit, credit or prepaid cards or digital wallets, as these fall under a different set of regulations.
The rules also exclude IT security services, communication network services and certain internal transfers within payment systems.
The CBUAE’s move to regulate dirham-backed stablecoins is intended as a step towards building a comprehensive framework that provides confidence to the market.
“While the new regulations in the UAE are wide-reaching, they should bring a level of transparency and protection to the market,” Kisswany said.
Any crypto business that deals in tokens is required to go through the CBUAE registration process.
“Upstanding businesses will have no issue qualifying and this will weed out the unscrupulous ones,” Kisswany said.