Privacy Tokens Barred as Dubai Updates Crypto Regulatory Code

TLDR

• Dubai has officially banned the use of privacy tokens across the Dubai International Financial Centre.
• The new rules prohibit trading, promoting, or using privacy coins such as monero and zcash within DIFC.
• The Dubai Financial Services Authority cited compliance risks related to anti-money laundering regulations.
• Firms are also banned from using mixers, tumblers, or other privacy tools that hide transaction data.
• The DFSA has redefined stablecoins and excluded algorithmic tokens like Ethena from this category.

Dubai’s financial regulator has banned privacy tokens within the Dubai International Financial Centre (DIFC) and redefined stablecoins, shifting token approval duties to companies. These changes come under the updated Crypto Token Regulatory Framework, which took effect on January 12. The Dubai Financial Services Authority (DFSA) has introduced these reforms to enhance compliance with global anti-money laundering (AML) standards.

Privacy Coins Banned Over Compliance Risks

The DFSA has enforced a complete ban on privacy tokens such as Monero (XMR) and zcash (ZEC) within the DIFC. This includes activities like trading, promotion, investment fund usage, and derivatives. The move aims to address AML and sanctions compliance concerns.

Elizabeth Wallace, Associate Director at the DFSA, explained the rationale behind the decision.

Wallace emphasized the inability to identify transaction originators or beneficiaries when using privacy-focused crypto.

The prohibition also applies to privacy-enhancing tools. These include mixers, tumblers, and any form of transaction obfuscation. The rules prevent regulated firms from using or offering such services in or from DIFC.

The DFSA’s approach sharply contrasts with other jurisdictions. Hong Kong still allows privacy tokens under a restrictive licensing framework. In the EU, the Markets in Crypto-Assets (MiCA) framework has effectively pushed privacy tokens out of regulated markets.

Stablecoin Rules Tightened, Algorithmic Tokens Excluded

The updated regulations also define “fiat crypto tokens” more narrowly. These are stablecoins pegged to fiat currencies and backed by high-quality, liquid assets. The DFSA aims to ensure they can meet redemption demands during times of market stress.

Wallace clarified that algorithmic stablecoins do not meet the new standards.

The DFSA stressed asset transparency and redemption assurance. Algorithmic models fail to meet these core requirements. This excludes several fast-growing products from the stablecoin category.

This redefinition aligns Dubai’s stance with global regulators focused on liquidity and reliability. Similar frameworks have been seen in the U.S. and European markets. Dubai aims to maintain credibility as a regulated financial center.

Firms to Take Responsibility for Crypto Token Approval

The framework introduces a major shift in crypto asset approval. The DFSA will no longer maintain a public list of approved tokens. Instead, licensed firms must assess the tokens they offer.

Firms are expected to document their evaluation and monitor these tokens continuously. Wallace stated this move reflects feedback from market participants. “Firms want the ability to make that decision themselves,” she said.

The new approach places accountability on the firms. Companies must ensure their offerings meet the regulatory standards set by the DFSA. This change supports a mature, self-regulating environment.

The DFSA will focus on enforcing compliance and supervising firms. Its role moves away from pre-approving assets and toward oversight. This mirrors regulatory trends in other leading jurisdictions.

Crypto firms operating in DIFC must now demonstrate strong internal controls. They must also maintain transparent token listing policies. The DFSA expects full traceability and auditability across crypto transactions.

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