The DFSA proposes radical overhaul of crypto token suitability and fund rules in the DIFC

Middle East | Publication | October 2025

On 1 October 2025, the Dubai Financial Services Authority (DFSA) published Consultation Paper No. 168 (CP168), outlining a series of important proposals aimed at enhancing the regulatory framework for crypto tokens in the Dubai International Financial Centre (DIFC).

The DFSA’s proposed rules seek to build upon its existing crypto token regime, which came into force in November 2022. The existing regime was introduced at a time when crypto tokens as an asset class was new and largely untested, and various investments relating to crypto tokens were undeveloped.

Given the significant developments to the crypto token market that have occurred since 2022, the DFSA is proposing to update the regime to reflect supervisory experience, market events and other regulatory (including international standard setter) developments. The proposals, which incorporate lessons learned from engaging with licensed firms, reflect the DFSA’s commitment to fostering innovation while maintaining robust investor protection and market integrity.

This article summarises the core proposals identified in CP168.

Key proposals
Next Steps

Key proposals

Major reform to crypto token suitability assessment

CP168 proposes a fundamental shift in the regulation of crypto tokens in the DIFC. Specifically, the DFSA proposes to remove its centralised recognition process for most crypto tokens (excluding fiat crypto tokens).

Instead, firms authorised by the DFSA (Authorised Persons) will be responsible for assessing the suitability of tokens for their specific activities, based on criteria such as transparency, liquidity, technology, and regulatory status. Firms will be required to maintain a public list of suitable tokens, continuously monitor their assessments, and cease activities in a particular token if that token no longer meets the criteria. Importantly, firms will need to retain documentary evidence to support their suitability assessments.
Fiat crypto tokens (stablecoins) will be treated differently by the DFSA, due to their unique features and range of emerging use cases. Under CP168, the DFSA will retain responsibility for assessing whether a fiat crypto token is suitable for use the DIFC. To support this activity, the DFSA is proposing to publish a Policy Statement which will outline the assessment criteria and list approved fiat crypto tokens.

The DFSA’s position that stablecoins should be treated differently to other crypto tokens aligns with the Financial Services Regulatory Authority’s (FSRA’s) proposed approach outlined in its recent Consultation Paper No. 9 of 2025 (CP9). Interestingly, in CP9, the FSRA stated that the basic purpose of FRTs is as a means of payment. By contrast, in CP168, the DFSA noted that fiat crypto tokens may, in the future, serve as a means of payment. Market participants will be interested to see how this seemingly different view of stablecoins will be reflected in future regulation.

ETFs and indirect exposures to crypto tokens

Under the DFSA’s current crypto token rules, namely General Module (GEN) 3A.2.1(1), exchange traded funds (ETFs) which track indices such as the Nasdaq 100 or S&P 500, may have been inadvertently caught by the Recognised Crypto Token restriction. This is because, for the purpose of GEN Chapter 3A, a fund was deemed to invest in crypto tokens where, amongst other things, it invested in another entity which has property that includes the crypto token.

Under CP168, the DFSA proposes to address this issue by excluding any investment in another fund or entity with exposures to crypto tokens that results solely from tracking an index other than an index that tracks the crypto token. Practically, this means that Authorised Persons will, in respect of ETFs, no longer be required to assess whether each entity making up an ETF has crypto token investments and subsequently whether such crypto tokens are recognised under DFSA rules. We expect this will be a welcome change for firms that either advise clients on ETFs or deal in ETFs on behalf of their clients.

Thresholds and restrictions in relation to crypto token funds

In a move set to substantially liberalise the fund management sector, CP168 proposes the removal of all thresholds and restrictions currently applied to collective investment funds that invest directly or indirectly in crypto tokens. The existing framework, which was introduced to mitigate initial market risk, imposed specific limits, such as a 20% Gross Asset Value cap on investments in recognised crypto tokens for external and foreign funds, and an even tighter 10% cap for Domestic Qualified Investor Funds investing in unrecognised crypto tokens.

The proposed elimination of these investment limits offers fund managers in the DIFC a new level of flexibility to structure funds with substantial, or even 100%, exposure to non-fiat crypto tokens, provided the underlying tokens are subsequently deemed "suitable" by the firm. This significant liberalisation aligns the DIFC with an increasingly permissive approach for sophisticated investors and signals the DFSA's confidence in Authorised Persons' ability to manage and disclose associated risks. We anticipate this change will be highly attractive to asset managers seeking to launch more diversified or aggressive digital asset investment strategies.

KFD

To streamline business conduct requirements and reduce administrative burden, the DFSA proposes to remove the obligation to provide a bespoke Key Features Document (KFD) when a firm is carrying out the regulated activities of arranging custody of a crypto token or providing custody of a crypto token. The KFD was originally intended to ensure clients received key information regarding the associated risks of holding crypto tokens.

The DFSA's rationale is that sufficient client protection is maintained through other existing, robust requirements, specifically the custody-specific disclosures and general business conduct rules that remain in force. This measured removal of an isolated document requirement is a clear indication that the DFSA is continuously refining its framework to become more proportionate and efficient, avoiding regulatory duplication while ensuring essential client protection standards are upheld.

Transitional measures

Importantly, a three-month transitional period will apply to previously recognised crypto tokens (excluding fiat crypto tokens), during which firms may continue activities. Authorised Persons wanting to carry on activities in relation to crypto tokens recognised by the DFSA following this period will need to have conducted a suitability assessment and assess that crypto token.

Given the relatively short transitional period, firms should begin thinking about conducting suitability assessments on crypto tokens they wish to conduct activities in relation to. Firms should also be mindful of their record keeping obligations in respect of such assessments.

Next Steps

CP168 invites comments from the public and industry stakeholders on all proposals. The deadline for submitting comments is 31 October 2025.

This article has been written by Middle East Partner and Head of Financial Services Regulatory Matthew Shanahan, Senior Associate Ratul Roshan, Associates Jack Abrehart and Hasanali Pirbhai and International Trainee Owen Greaves.