Dubai’s Financial regulator banned privacy tokens from use across the Dubai International Financial Centre (DIFC) aligning with anti-money laundering (AML) and sanctions standards.
The updated crypto regulations focusing on compliance and risk control will be fully implemented from January 12. Dubai Financial Services Authority (DFSA) is evolving its role as a regulator, enforcing global compliance rather than simply approving individual crypto assets.
The impetus for the regulatory shift
The change came from the recent headlines of privacy coins such as Zcash and Monero gaining popularity among traders. They are designed to keep transactions anonymous, allowing users to send and receive funds without revealing their identities.
Such coins are no longer allowed because their anonymity features make it hard to track transactions. Regulators see this as a risk for money laundering, terrorism financing, and sanctions evasion.
Clarity over anonymity in Dubai
In an interview with the media, Elizabeth Wallace, associate director for policy and legal at the DFSA said, “Privacy tokens have features to hide and anonymize the transaction history and also the holders.”
Under the new regulation, instead of the DFSA approving each crypto token, companies themselves must now assess and justify whether a token meets regulatory standards.
The Financial Action Task Force (FATF) sets global AML or Combating the Financing of Terrorism (CFT) standards for DIFC’s regulatory framework.
Wallace further emphasized the FATF’s mandate, which is that the firms should be able to identify all parts of the crypto transaction. “It’s nearly impossible for firms to comply with Financial Action Task Force requirements if they are trading or holding privacy tokens,” she added.
Stablecoins under the stricter definition
The impact has also extended to tightening stablecoins under stricter criteria. For instance, Ethena, an algorithmic stablecoin under the DFSA, does not meet the new requirements due to its limited transparency on operations and redemption.
“In our regime, Ethena wouldn’t be considered a stablecoin,” Wallace said. “It would be considered a crypto token.”
The regulators call them “Fiat Crypto Tokens” and limit the category to those backed by high-quality liquid assets and able to meet redemptions even during market stress.
Global trend on privacy coin regulations
These measures are not unique to Dubai. MiCA regulations under the European Union have regulations directly impacting these privacy coins. One of its key components is something called “The Travel Rule.”
This rule requires transactions over a certain amount to include the personal details of both the sender and receiver, making all activities traceable for regulators.
The Japanese Financial Security Agency (FSA) announced in 2021 an outright ban on all anonymous cryptocurrencies, pulling four major privacy coins, such as Monero, Dash, and Zcash, from their platforms.
