The Dubai International Financial Centre (DIFC) has proposed to enact a new law to regulate digital assets, as it seeks to keep pace with the rapid developments in the financial markets.

The proposed Digital Assets Law sets out a legal framework on how virtual assets like cryptocurrencies, NFTs, stablecoins and security coins can be controlled, transferred and dealt with.

The DIFC has also proposed a new legislation called the Law of Security, which is modelled on the UNICTRIAL Model on Secured Transactions and has been adapted to “take account of specific factors relating to DIFC”.

“DIFC has been working closely with experts in the field of digital assets and banking and finance to create a global, groundbreaking Digital Assets Law, and in doing so proposes a significantly enhanced and updated Law of Security regime,” said Jacques Visser, Chief Legal Officer at DIFC.

Virtual assets represent a trillion-dollar industry that continues to evolve and expand.

The value of the global crypto market alone surged to roughly $2 trillion in 2021 from $100 billion three years earlier, according to CoinMarketCap.

Also in 2021, companies logged more than 2 billion transactions totalling $1.4 trillion in virtual currency activities, up from $193 billion in activities in 2020, according to the Office of Financial Research in the United States.

No comprehensive framework

In a statement, the DIFC noted that to date, no comprehensive legal framework has yet to be put in place to map 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.

Many jurisdictions, it said, have tried to regulate and impose sanctions on some of the practical applications of virtual assets from a regulated financial services perspective.

“However, the fundamental benefits brought about by blockchain technology, the digital asset that can be created thereby, and their application across a wide spectrum of use cases will grow and become of increasing importance in a much wider context.”

“In this regard, the broader legal questions as to the exact nature of the legal features and impact of digital assets remains open for debate on several key issues.”

The proposals drafted by the DIFC, contained in Consultation Papers No. 4 and No. 5 of 2023, have been posted for a 40-day public consultation. The public can provide their comments on or before November 5, 2023.

The papers are available on the DIFC Legal Database.

(Writing by Cleofe Maceda; editing by Seban Scaria)