Dubai’s DIFC enacts world’s first comprehensive digital assets law

Dubai International Financial Centre (DIFC) has taken a landmark step by enacting the world’s first digital assets law. This new legislation aims to provide legal certainty and a robust framework for investors and users of digital assets within the financial centre.

The trillion-dollar digital asset industry has witnessed rapid growth and holds immense potential for future innovation. While many jurisdictions have focused on regulating specific applications of these assets from a financial services perspective, DIFC’s law delves deeper. It addresses the fundamental legal characteristics of digital assets, outlining how users and investors can interact with them.

Before this enactment, the legal nature of digital assets remained somewhat ambiguous. International judgments provided some guidance but lacked a comprehensive framework. Through extensive research and public consultation, the DIFC identified key legal questions and built a framework to address them.

Clearly defining digital assets with updates on other key areas

The new Digital Assets Law (DIFC Law No 2 of 2024) establishes a clear definition of digital assets as a form of property. It details how these assets can be controlled, transferred, and dealt with by various parties. This legal clarity will foster increased confidence and participation within the digital asset market.

The DIFC’s initiative doesn’t stop at the new law. Recognising the potential impact of digital assets on existing legal frameworks, the financial centre has also updated several related laws. DIFC Amendment Law No 3 of 2024 modifies existing legislation such as the Contracts Law, Law of Obligations, Law of Security, and Trust Law to address specific issues arising from the digital asset landscape.

One such update allows for the use of “electronic transferable records”. These digital equivalents of paper trade documents such as bills of lading or warehouse receipts will expedite cross-border transactions. This innovation increases speed and security by facilitating faster document transmission and enabling automation of certain transactions through smart contracts.

Innovation in secured transactions has accelerated in recent years. This includes platforms that allow for extending credit secured by digital assets.

Recognising this trend, the DIFC has implemented a new Law of Security (DIFC Law No 4 of 2024). The law, modelled on the UNCITRAL Model Law on Secured Transactions, replaces the existing 2005 law.

The updated framework provides clarity on taking security interests in digital assets and aligns the DIFC with international best practices.

“DIFC is excited to announce the enactment of its digital assets law,” said Jacques Visser, chief legal officer at DIFC Authority. “We consider this legislation to be groundbreaking as it comprehensively sets out the legal characteristics of digital assets and how they can be interacted with.”

He emphasised that the new law, coupled with the revised Law of Security, positioned DIFC at the forefront of global best practices in the digital asset space.

DIFC digital assets law is now in effect

The new legislation came into effect on March 8 and is available for public access through the DIFC’s Legislative Database.

In other news, DIFC said new company registrations surged by 34 per cent in 2023, bringing the number of active companies in the financial centre to 5,523.

DIFC said 1,451 new companies commenced operations in the financial hub last year, the highest number of new registrations since the founding of the centre two decades ago.