Under the DFSA’s General Module (GEN) and Code of Business (COB) rulebooks, the DFSA may recognise a jurisdiction as having a regulatory regime for crypto tokens that is equivalent to the DFSA’s regime if it is satisfied, amongst other factors, that (a) legislation in that jurisdiction includes requirements and safeguards equivalent to that offered by the DFSA’s regulatory regime; and (b) adequate arrangements are in place in that jurisdiction for licensing and supervision (Recognised Jurisdictions).

The GEN rulebook currently lists more than 50 Recognised Jurisdictions including the United Kingdom, all European Economic Area member states, Australia, Singapore, Hong Kong and Japan.

However, under consultation paper 168 relating to enhancements to the regulation of crypto tokens (CP 168), the DFSA proposes to remove all provisions relating to Recognised Jurisdictions both from the GEN and COB rulebooks.

If the DFSA were to proceed with this removal, this would result in DIFC firms having to:

• assume full responsibility for assessing the regulatory soundness and suitability of crypto tokens for all jurisdictions.
• double down on regulatory due diligence for tokens and services already approved by reputable regulators abroad.
• establish internal policies and periodic assessments while maintaining audit trails and records of such assessments.

The Recognised Jurisdiction mechanism effectively served as a shortcut streamlining cross-border operations, and the introduction of this proposal would significantly burden DFSA firms by introducing heightened compliance obligations.

From the DFSA’s perspective, this is a move towards a principles-based approach focusing on accountability and regulatory independence. By removing the concept of Recognised Jurisdictions, the DFSA is no longer deferring to the standards of other regulators but is rather positioning itself as a leading regulator with its own standards and regulatory autonomy. This follows in the footsteps of the UK’s Financial Conduct Authority and the European Securities and Markets Authority.

Do you think the strategic value of regulatory autonomy outweighs the cost of increased compliance? Personally, I think the DFSA could have leveraged its regulatory autonomy in other ways as this particular move makes compliance more onerous on firms without necessarily delivering proportionate regulatory benefits.