DIFC crypto regulations shift token approval to firms, prohibit privacy-enhancing cryptocurrencies
The Dubai Financial Services Authority (DFSA) implemented sweeping changes to its Crypto Token regulatory framework on January 12, 2026, marking the most significant update since the regime launched in November 2022. The revised rules transfer token suitability assessments from the regulator to licensed firms, introduce an outright ban on privacy tokens, and tighten stablecoin definitions within the Dubai International Financial Centre (DIFC).
Charlotte Robins, Managing Director of Policy and Legal at the DFSA, said the enhancements reflect the regulator's progressive stance on innovation and proactive response to market developments. The updated framework follows extensive stakeholder engagement, with the DFSA having consulted with over 100 firms seeking licensing since 2022.
Firms Now Responsible for Token Suitability
Under the previous framework, the DFSA maintained a centralised list of Recognised Crypto Tokens that firms could use for regulated activities. This list initially included only Bitcoin, Ethereum, and Litecoin in 2022, later expanding to include Toncoin, Ripple, and ZetaChain. The regulator has now eliminated this list entirely.
Licensed firms must now determine, on a documented basis, whether each token they engage with meets the DFSA's suitability criteria. Elizabeth Wallace, Deputy Director of Policy and Legal at the DFSA, explained that firms had evolved and become more familiar with financial services regulation, and wanted the ability to make these decisions themselves.
The DFSA published Supervisory Guidelines in December 2025 to support firms in conducting assessments. Key evaluation criteria include:
- Governance transparency and technical documentation
- Years in operation and historical trading data
- Ownership concentration and manipulation risks
- Regulatory treatment in other jurisdictions
- Technology resilience and cybersecurity responsiveness
A three-month transitional period applies to previously recognised tokens, allowing firms until April 12, 2026, to complete their own suitability assessments.
Privacy Tokens and Mixers Prohibited
The updated framework explicitly bans privacy tokens and privacy-enhancing devices within the DIFC. Assets such as Monero and Zcash, which use cryptographic features to obscure transaction details, are now prohibited for all regulated financial services activities including trading, custody, and derivatives.
The ban extends to mixing services, tumblers, and transaction-obfuscation tools such as Tornado Cash. Wallace noted that privacy tokens make it nearly impossible for firms to comply with Financial Action Task Force (FATF) requirements, which mandate identification of all transaction participants. The DFSA's policy statement clarifies that allowing mixers would render the privacy token ban meaningless.
The prohibition applies specifically to DFSA-licensed entities operating in or from the DIFC. Individuals remain free to hold privacy coins in private wallets outside the regulated framework. Dubai's mainland regulator, VARA, implemented a similar ban in February 2023.
Stablecoin Rules Tightened
The DFSA has introduced a narrower category called Fiat Crypto Tokens for stablecoins. Only tokens pegged to fiat currencies and backed by high-quality liquid assets capable of meeting redemption demands during market stress qualify for this classification.
Algorithmic stablecoins are explicitly excluded. Wallace confirmed that Ethena's USDe, which uses derivatives and hedging strategies rather than cash reserves, would be classified as a general crypto asset rather than a stablecoin under the new rules. Such products can still be traded but face stricter disclosure requirements.
Currently, only three stablecoins hold DFSA recognition as Fiat Crypto Tokens: Circle's USDC and EURC, approved in February 2025, and Ripple's RLUSD, approved in June 2025. The DFSA retains responsibility for assessing and approving fiat-backed stablecoins, maintaining a centralised recognition model for these assets.
Enhanced Compliance Requirements
Firms face substantial new compliance obligations under the framework. Suitability assessments must be conducted at least every six months, with continuous monitoring systems in place. Firms must publicly disclose their list of suitable tokens and update it promptly when assessments change.
The DFSA has introduced mandatory monthly Crypto Token information returns submitted via its e-portal, with non-compliance subject to Fixed Penalty Notices. The regulator has emphasised that exchange listings alone do not satisfy regulatory expectations, and poor documentation creates enforcement risk.
With nearly 7,000 firms active in the DIFC and over 600 entities potentially utilising crypto tokens, the shift to firm-led assessments represents both opportunity and increased liability. Firms must invest in robust governance frameworks and skilled compliance personnel to meet the DFSA's heightened expectations.
Further Reading
DFSA Implements Major Updates to Crypto Token Regulatory Framework (DFSA Official)Dubai Updates Crypto Token Regulatory Framework (Dechert)
DFSA's Updated Crypto Token Framework (Clyde & Co)
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