Dubai Restricts Privacy Tokens Over AML and Regulatory Concerns

Dubai Financial Services Authority has issued a formal prohibition on privacy-focused cryptocurrency. The limitation applies to privacy token-related trading, promotion, fund activities, and derivatives.

Fears of financial criminality have prompted the United Arab Emirates to tighten regulatory controls on digital assets. The Dubai Financial Authority has taken steps to limit privacy tokens that do not meet international regulatory standards.

Dubai Regulator Bans Privacy Tokens in the DIFC

The DFSA has moved to revise its Crypto Token Regulatory Framework. They prohibited the usage of privacy coins in their International Financial Centre (DIFC). This move stems from anti-money laundering and sanctions compliance issues with the tokens.

The ban has far-reaching ramifications, including the trading, advertising, operation of funds, and derivatives of such assets in or from the DIFC. The new system will take effect on January 12.

However, corporations operating in the DIFC will be more accountable for ensuring that their cryptographic assets satisfy the required criteria. Interestingly, this comes as privacy tokens, like as Zcash, have recently garnered commercial traction.

In a statement, Elizabeth Wallace, the associate director for policy and legal issues at Dubai's DFSA, explained why the decision was made:

“Privacy tokens have features to hide and anonymize the transaction history and also the holders. It’s nearly impossible for firms to comply with Financial Action Task Force requirements if they are trading or holding privacy tokens,” she said.

The move comes against a different backdrop from the developments in the United States. While the DIFC has ruled on absolute prohibition, members of the United States Securities and Exchange Commission are actively exploring the possibility of a future in which privacy and security can coexist. The US SEC Crypto Task Force recently held a roundtable discussion on ‘Financial Surveillance and Data Protections'.

UAE Announces Rule Changes for Stablecoins

In addition to privacy tokens, the Dubai DFSA's amended regime improves its definition of stablecoins. In its definition, “fiat crypto tokens” are expressly defined. This would be limited to tokens pegged to fiat and backed by high-quality, liquid reserves capable of satisfying claims during market downturns.

Algorithmic stablecoins do not meet this criterion. Although they are not outlawed, they will be classified as ordinary crypto tokens rather than stablecoins under the DIFC regulatory framework.

Despite its stricter approach to certain assets, the UAE is moving forward with permitted blockchain innovation. Late last November, for example, an Abu Dhabi digital bank called Zand launched Zand AED, the country's first stablecoin.

Aside from the privacy tokens introduced by the revised regulations, one of the most significant changes is that the new system will be industry-driven for approvals, which means that rather than the Dubai government maintaining a list of supported cryptocurrencies, companies will be left to decide whether the coins they deal in are suitable for use.