DFSA Announces Consultation on Enhancements to the Regulation of Crypto Tokens

On October 1, 2025, the Dubai Financial Services Authority (DFSA) released Consultation Paper 168 titled “Enhancements to the Regulation of Crypto Tokens”. This follows the establishment of a dedicated crypto token regime in 2022, which was subsequently updated in 2023 and 2024. The consultation is open until October 31, 2025, and sets out proposals to shift responsibilities, simplify existing requirements, and strengthen reporting obligations.

The paper covers amendments across multiple parts of the DFSA Rulebook, including the General module, Conduct of Business, Collective Investment Rules, Fees, Authorised Market Institutions, Market Rules, and Glossary. If adopted, the changes will materially affect firms providing investment, trading, or fund management services involving crypto tokens in the Dubai International Financial Centre (DIFC).

Suitability of Crypto Tokens

The most significant reform is the proposed shift in responsibility for determining whether a crypto token is suitable for use in the DIFC. At present, the DFSA maintains a published list of “recognized” crypto tokens, which firms may rely on when carrying out activities. As of October 2025, the recognized tokens include Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Toncoin (TON), XRP (Ripple), ZetaChain (ZETA), USDC, EURC, and Ripple’s RLUSD.

Under the consultation proposals, this system would be removed. Firms themselves would be required to conduct and document suitability assessments for each crypto token (other than fiat-backed tokens) they intend to use in activities such as dealing, advising, managing assets, managing/operating funds, or derivatives (not including custody).

The DFSA outlines specific criteria firms must consider, including:

• Transparency of the token’s governance and purpose
• Regulatory status in other jurisdictions
• Market liquidity and trading history
• Technology used
• Whether the token’s use could hinder compliance with DFSA regulations

Firms must retain records of all assessments and be able to demonstrate their rationale to the DFSA upon request.

To support implementation, the DFSA will publish Supervisory Guidelines outlining expectations for how firms should conduct suitability assessments. For fiat-backed tokens, the DFSA will retain responsibility for determining suitability and will issue a Policy Statement detailing the criteria used and listing approved tokens. This approach reflects regulatory caution around stablecoins due to potential systemic risks and AML/CTF concerns. However, the prohibition on privacy tokens, algorithmic tokens, and the use of privacy-enhancing devices is retained.

Removal of Recognized Jurisdictions

Previously, firms could rely on DFSA recognition of certain foreign jurisdictions as an alternative pathway to determine whether a crypto token was suitable for use in the DIFC. These provisions are explicitly struck out in the draft amendments. The DFSA proposes to delete the recognized jurisdictions criterion for crypto token suitability assessment altogether.

This means suitability assessments will no longer be tied to whether a token is issued or supervised in a DFSA-approved foreign jurisdiction. Instead, firms must apply their own assessments regardless of jurisdictional origin, except in the case of fiat-backed tokens which remain subject to DFSA approval.

Investing in Crypto Tokens

Under the current framework, the treatment of funds investing in crypto tokens depends on the type of fund. External funds may invest in recognized crypto tokens but only up to 20% of their gross asset value, and only where additional conditions apply such as:

• Private placement
• Offers restricted to professional clients
• Minimum initial subscription of US$50,000

Foreign funds have been subject to two distinct approaches: some have faced a complete prohibition on investing in crypto tokens, meaning they cannot be marketed in the DIFC if they have any such exposure, while others have been permitted to invest in recognized crypto tokens under the same conditions and 20% cap that apply to external funds.

The DFSA proposes to delete these restrictions. Under the new framework, domestic, external, and foreign funds may invest directly or indirectly in crypto tokens without a fixed percentage cap, provided the tokens pass a suitability assessment.

The definition of when a fund is considered to invest in crypto tokens is narrowed. Indirect exposures are disregarded where they arise solely from tracking an index other than one that tracks the crypto token, or where the aggregate exposure of another fund/entity to crypto tokens does not exceed 5% of its gross asset value.

Other requirements, including custody arrangements, disclosure obligations, and borrowing restrictions, remain in place.

Conduct of Business

Amendments to the conduct of business rules target two specific areas:

• Key features documents are not required where a firm is providing or arranging custody of crypto or investment tokens
• Current limitations on the net asset test for professional client classification would be deleted. Firms may count full token value toward the test, provided classification remains appropriate

Transitional Period

A three-month transitional period is proposed to implement this change. During this time, tokens previously recognized by the DFSA will be deemed suitable, giving firms time to conduct their own assessments. After this period, the DFSA’s list of recognized tokens will become inoperative, and firms must maintain and publish on their own websites the tokens they have assessed as suitable.

Fees

The DFSA will delete the application fee for recognition of a crypto token. Since recognition will no longer be part of the framework, the fee is obsolete.

Monitoring and Reporting Obligations

A new monthly reporting requirement would be introduced. Authorized firms must file a crypto token information return with the DFSA via its e-portal within 14 days of month-end. The return must include:

• Which tokens the firm has deemed suitable
• Activities conducted with those tokens
• Transaction volumes and sizes
• Number of clients involved
• Tokens previously deemed suitable that are no longer considered appropriate

This reporting obligation will be subject to the DFSA’s fixed penalty regime for late filings.

Firms will also be required to continuously monitor the suitability of crypto tokens and update their assessments as market conditions evolve. If a token is no longer deemed suitable, firms must cease related activities and remove it from their published list.

This list, which must be prominently displayed on the firm’s website, should include the token’s name, ticker symbol, and the technology or network it operates on. Firms are encouraged to provide additional context about the activities and client types for which each token is deemed suitable.

Conclusion

Consultation Paper 168 represents a decisive move by the DFSA to shift responsibility for crypto token suitability away from a centralized recognition list and onto firms themselves.

The deletion of provisions relating to recognized jurisdictions, fixed investment caps for funds, and restrictions in the professional client test, indicate the DFSA’s intention to build a more flexible but well-regulated regime in light of the constant evolution of the digital asset market.

These changes are balanced by new reporting requirements and the continued prohibition of certain token types. With the consultation closing on October 31, 2025, market participants should anticipate these amendments and prepare internal policies, disclosures, and systems to meet the new suitability and reporting obligations.