Revolutionizing Financial Regulations: Dubai International Financial Center (DIFC) Introduces the World’s First Digital Assets Law
The financial landscape is undergoing a significant transformation, with technological advancements leading to new opportunities and challenges in international trade and finance. In response to these developments, Dubai International Financial Center (DIFC), a leading financial hub based in the United Arab Emirates (UAE), has taken a bold step forward by launching the world’s first comprehensive Digital Assets Law. This law, No. 2 of 2024, aims to ensure that DIFC’s legal framework keeps pace with the evolving financial markets and provides much-needed legal certainty for investors and users of digital assets.
A Comprehensive Legal Framework for Digital Assets
The Digital Assets Law is designed to cater to the consequences of the new digital assets regime and revised security regime. By utilizing and regulating digital assets across a wide spectrum of use cases, DIFC intends to offer a comprehensive legal framework that maps out the full extent of the legal characteristics of a digital asset and how users and investors within this asset class may interact with each other. Following an extensive review of various jurisdictions’ legal approaches to digital assets and a period of public consultation in 2023, DIFC is now enacting its own Digital Assets Law.
Updating Existing Laws for Digital Assets
In addition to the new Digital Assets Law, existing DIFC laws have also been updated through DIFC Amendment Law, No. 3 of 2024, to cater to specific issues arising from the digital asset class. Updates to the Law of Obligations provide for the use of electronic transferable records, which are functionally equivalent to paper trade documents or instruments such as bills of lading, bills of exchange, promissory notes, and warehouse receipts. The recognition of these documents in electronic form facilitates greater efficiencies within cross-border digital trade by increasing the speed and security of transmission of documentation and enabling automation of certain transactions through smart contracts.
Enhancing DIFC’s Securities Regime: New Law of Security
With the emergence of businesses and platforms enabling extension of credit in, and secured or covered by, digital asset collateral arrangements, and an increasing drive to digitize international trade, DIFC is repealing the 2005 Law of Security and replacing it with a new Law of Security. This significant amendment to DIFC’s securities regime will align it with international best practices and provide clarity in relation to taking security over digital assets, while repealing the Financial Collateral Regulations and amalgamating financial collateral provisions into a new chapter of the new Law of Security.
DIFC’s Chief Legal Officer on the Importance of Digital Assets Law
Jacques Visser, Chief Legal Officer at DIFC Authority, expressed excitement about the enactment of the Digital Assets Law, noting that it is groundbreaking as the first legislative enactment to comprehensively set out the legal characteristics of digital assets as a matter of property law and provide for how digital assets may be controlled, transferred, and dealt with by interested parties. Additionally, the revised securities regime is modeled on the UNCITRAL Model of Secured Transactions and significantly enhances DIFC’s securities regime to keep pace with international developments in this field.
DIFC’s Early Embrace of Digital Assets Regulation
In September 2023, DIFC and Dubai’s virtual asset regulatory authority announced plans to update their regulations to target digital assets, security tokens, and stablecoins. The new Digital Assets Law and the updated securities regime represent DIFC’s commitment to staying at the forefront of technological advancements and maintaining a favorable regulatory environment for innovation in finance.
