Digital assets are gaining recognition, and more lawmakers are including them in innovative law frameworks. The Dubai International Financial Centre (DIFC), one of the largest financial hubs in the Middle East, Africa, and South Asia (MEASA) region, has enacted what they call the “world’s first” digital assets law. Following an extensive review of the legal approaches taken to digital assets in multiple jurisdictions and a public consultation period in 2023, DIFC is now enacting its own Digital Assets Law.
The legislative enactments aim to ensure DIFC laws keep pace with the rapid technological developments in international trade and financial markets and to provide legal certainty for investors and users of digital assets.
Digital Assets represent a trillion-dollar asset class, and the scope for future innovation and market opportunities within it are considerable. Thus far, the primary focus in many jurisdictions has been to regulate and impose enforcement-related sanctions on some of the practical applications of this asset class from a regulated financial services perspective. However, the fundamental benefits of blockchain technology, the digital assets that can be created thereby, and their application across a broad spectrum of use cases will grow and become increasingly important in a much broader context.
In this regard, the broader legal questions about the exact nature of the legal features and consequences of digital assets have very much remained open for debate on several key issues. International legal developments and judgments across the common law world have begun to provide some clarity in this regard but have not yet provided a comprehensive legal framework mapping out the full extent of the legal characteristics of a digital asset and how users and investors within this asset class may interact with digital assets and each other.
Updates to the Law of Obligations also provide for using electronic transferable records. Electronic transferable records are functionally equivalent to paper trade documents or instruments such as bills of lading, bills of exchange, promissory notes and warehouse receipts. Recognition of such documents in electronic form facilitates greater efficiencies within cross-border digital trade by increasing the speed and security of the transmission of documentation and allowing for the automation of certain transactions through smart contracts.
Similarly, a great deal of innovation has taken place in secured transactions regimes internationally—particularly since the DIFC Law of Security was enacted in 2005. This includes the emergence of businesses and platforms that enable the extension of credit in digital asset collateral arrangements and are secured or covered by them, as well as an increasing drive to digitise international trade.
Following consideration of regimes in other jurisdictions and, in particular, UNCITRAL’s Model Law on Secured Transaction, in conjunction with the new Digital Assets Law, DIFC is repealing the 2005 Law of Security, and replacing it with a new Law of Security to amend and enhance DIFC’s securities regime significantly. This will align the regime with international best practice and provide clarity in relation to taking security over digital assets. In doing so, DIFC is also repealing the Financial Collateral Regulations, amalgamating the financial collateral provisions into a new chapter of the new Law of Security.
Jacques Visser, Chief Legal Officer at DIFC Authority, said: “DIFC is excited to announce the enactment of its Digital Assets Law. We consider this legislation to be groundbreaking as the first legislative enactment to comprehensively set out the legal characteristics of digital assets as a matter of property law, and to provide for how digital assets may be controlled, transferred and dealt with by interested parties.”
She added: “At the same time, we are also enacting a new Law of Security, replacing the 2005 law. The revised regime is modelled on the UNCITRAL Model of Secured Transactions. It significantly enhances DIFC’s securities regime to keep pace with international developments in this field and to ensure DIFC remains at the forefront of best practice.”
The new legislation was enacted on 8 March 2024 and can be accessed via DIFC’s Legislative Database. The new laws reflect the Centre’s commitment to maintaining a transparent and robust legal and regulatory framework aligned with global best practices.
Besides its definitions, DIFC’s Digital Assets Law amends a series of other existing DIFC laws, including the contracts law, law of obligations, law of security, law of damages and remedies, trust law, and foundations law, to address some determinations. For example, some laws now consider some digital assets as money, and some modify the definition of this asset class to the one adopted by this new law.
The law changes previous contracts, insolvency, damages, obligations, securities, and personal property laws, amending them to account for the existence of these assets. In other words, DIFC is revamping its whole legislative system to include digital assets such as cryptocurrencies and non-fungible tokens (NFTs).
Jacques Visser, Chief Legal Officer at DIFC Authority, explained the potential of this law and its pioneer character in the world. Visser remarked that the DIFC considers this document “groundbreaking,” as it is “the first legislative enactment to comprehensively set out the legal characteristics of digital assets as a matter of property law.” Furthermore, the document provides “for how digital assets may be controlled, transferred and dealt with by interested parties.”
Dubai approved its digital assets law in 2022, appointing the Virtual Assets Regulatory Authority (VARA) as the agency in charge of the sector. However, this law did not apply to the DIFC, as the free zone has its own governing body, the DIFC Authority, and its financial services regulator, the Dubai Financial Services Authority (DFSA). In August, the DIFC announced that it would subsidize 90% of the cost of the licenses for Web3 and artificial intelligence (AI) companies waiting to open operations in the special economic zone.
What do you think about the Digital Assets Law enacted by the DIFC? Interested to open a business under the DIFC authority? Speak with our DIFC Business Setup Consultants by reaching out to [email protected] or 800 64626 (NHMAN). Additionally, our team of experienced regulatory compliance team can assist you in crypto licensing in UAE.
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