UAE Central Bank introduces stablecoins regulation

| Legal Alert

The Central Bank of the UAE has recently issued the Payment Token Services Regulation, which aims to regulate business activities related to stablecoins in the UAE. The Regulation covers the following activities involving stablecoins performed as a business within the UAE:

  • Issuance of stablecoins;
  • Conversion of stablecoins (into other cryptocurrencies or fiat currencies);
  • Transfer and custody of stablecoins (including services provided to facilitate or enable a business to receive payments in stablecoins in exchange for goods or services).
The Regulation provides for three types of control mechanisms for activities related to stablecoins: licensing, registration and non-objection registration. The difference between them lies in the level of compliance and oversight required. Licensing involves more stringent compliance and oversight, while registration and non-objection registration are less demanding but still ensure compliance with regulatory standards.

    1. Licensing is the default control mechanism. The Regulation outlines three categories of eligible licences: Dirham-denominated stablecoin issuers, stablecoin custodians and transferors, and stablecoin converters. Applicants for a licence must be companies incorporated in the UAE or its free zones.

      Notably, a dirham-denominated stablecoin issuer must submit a white paper to the Central Bank detailing the technical specifications and operational data of the payment token to ensure a thorough assessment before entering the market. A licensed stablecoin issuer must back its stablecoin with an initial capital of at least 15 million dirhams and maintain additional ongoing capital of at least 0.5% of the fiat currency face value of the outstanding payment tokens.

      Other considerations include that stablecoin issuers may not offer any interest or benefits related to the length of time a customer holds a payment token. The CBUAE may also impose restrictions on the volume or value of payment tokens traded or the total number of customers that a licensee or registered entity may accept.

    2. Registration is a procedure designed for foreign stablecoin issuers aiming to offer their stablecoins in the UAE or to UAE residents. Any company incorporated outside the UAE or in a UAE Financial Free Zone may apply for registration as a foreign stablecoin issuer.

    3. Non-objection registration is a procedure provided for activities such as conversion of stablecoins or their custody and transfer when carried out by crypto exchanges (such as Binance or Bybit), exchange houses or banks. Persons licensed by the UAE Securities and Commodities Authority or any local licensing authority as a virtual asset service provider to provide custodial services for virtual assets may also apply for non-objection registration to provide the aforementioned services.

    The regulation prohibits the provision of any stablecoin-related service in the UAE or to persons in the UAE, unless the activity is licensed or registered by the Central Bank.

    The regulation also stipulates that stablecoins can only be transferred, accepted by merchants and promoted in the UAE if they are denominated in dirhams and issued by a licensed UAE company, or if they are denominated in a currency other than dirhams and used exclusively for the purchase of cryptocurrencies, NFTs and other virtual assets. The provision of other transfer services in the UAE or to UAE residents is prohibited, with the exception of non-custodial wallets such as TrustWallet or MetaMask, which only provide technology for users to transfer cryptocurrency on their own behalf.

    The regulation also bans the issuance or provision of other services in relation to algorithmic stablecoins or private cryptocurrencies and tokens such as Monero or Zcash. The new framework is scheduled to come into effect in June 2025.

    UAE regulators are actively introducing new rules to regulate cryptocurrencies. Given the attractiveness of the UAE market as a global economic hub, it is expected that issuers of stablecoins such as Tether (USDT) or Circle (USDC) will apply to the regulator for registration as foreign issuers. Otherwise, these stablecoin issuers will have to limit their stablecoin offering to UAE residents. We can also expect the emergence of new stablecoins from new issuers or subsidiaries of major players targeting the UAE market.

    At Cardinals, we specialise in digital assets and cryptocurrencies. If you are planning to expand your crypto business into the UAE market, we can provide expert guidance and support to help you navigate the regulatory requirements and successfully enter this promising market.

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