HIGHLIGHTS
STORED VALUE FACILITIES (SVF) REGULATIONS: CENTRAL BANK OF UAE
In a ground-breaking move to address the rapid technological advancements of stored value products and services, the Central Bank of UAE has repealed and replaced the ‘Regulatory Framework for Stored Values and Electronic Payment Systems’ (2016) to implement the ‘Stored Value Facilities (SVF) Regulations’. This regulation is aimed at ensuring the secure and efficient governance of the digital payments industry and stored value facilities.
The timing of these regulations with the publication of the Crypto-Asset Regulations by the Securities Commodities Authority is a major breakthrough for all digital asset and payment service providers in the region. The UAE has now positioned itself at the forefront of digital transformation in the region and has successfully created a regulatory environment that effectively balances financial stability and promotes digital innovation of FinTech companies and non-banking payment providers.
The SVF Regulations are a landmark development for the digital payments industry and our main highlights from the regulation are:
- The scope of this regulation includes the licencing, supervision and enforcement provisions applicable to the companies licenced to provide a stored value facility with the certain exceptions as stipulated in the regulation such as a single purpose stored value facility, cash reward schemes, certain bonus point schemes, etc.
- The definition of a stored value facility has been extended to include values, points, crypto-assets or virtual assets and the introduction of a ‘relevant undertaking’ is ground-breaking as users can now store virtual assets or cryptocurrencies with custodians or digital wallets to process payments, remittances or P2P lending. Further, the regulation has introduced a novel distinction between device-based and non-device based stored value facilities.
- The regulation requires licensees to seek legal opinion and consultation to ensure the legal and regulatory compliance of their websites/apps, risk management, cyber-security and cyber resilience frameworks.
Please note that the regulation provides one-year transitional period will commence on the date when the regulation comes into force. Please contact our team for further details on how this regulation will impact your business.
Decision of the Chair of the Authority Board no. (23) of 2020 Concerning the Regulation on Crypto Assets Activities: SECURITIES AND COMMODITIES AUTHORITY OF UAE
- The law regulates, issuance of crypto assets from entities incorporated under federal commercial companies’ law from mainland and freezones of UAE, (except financial freezones DIFC, ADGM)
- Created definition for crypto assets at par with international standards like FATF’s definition of virtual currencies to mean “1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value”
- Created categories of security tokens and commodity tokens. While definition of security tokens is at par with international standards, commodity tokens is a unique classification and not many regulators have taken that approach. Similarly, it’s the first federal regulator in middle east to create provisions for issuance and offering of security tokens
- Created a possibility of operating loyalty and reward schemes and issuance of ecosystem restricted commodity tokens.
- Acknowledged the possibility of issuance of central bank digital currencies and government/federally issued tokens.
- Created a category of ‘Crypto Assets Market’ which will make trading, transfer and/ or exchange of crypto assets possible in return for other crypto assets, funds, securities and/or commodities.
- Created a unique concept of ‘Digital Crypto Fund-Raising Platform’ which will include varied types of platform including crowdfunding and lending platforms which will facilitate fundraising activities in relation to crypto assets, security tokens and commodity tokens.
- UAE is now the first country in the region to have regulations and rules around security tokens – both from a financial freezone and at a federal government level.
By Poojitha Jananrthanan (Associate), Akshata Namjoshi (Fintech Lead) with inputs from Kokila Alagh (Founder)
