The Enactment of the Digital Assets Law in DIFC

In our previous article, we had discussed the anticipated implementation of the Dubai International Financial Centre (“DIFC”) Digital Assets Law (“DAL”). The law had since been enacted on 1 March 2024, marking a significant milestone in the regulation of digital assets in the DIFC. The DAL acts as a regulatory framework to govern the issuance, trading, and management of digital assets within the DIFC. It also addresses various fundamental uncertainties in relation to the legal nature of digital assets, and establishes a guideline for the transfer, control, and dealing of digital assets. The key takeaways are as follows:

Defining Digital Assets

One of the most significant advances in this law is its clear definition of what constitutes a digital asset, setting out its legal characteristics, proprietary nature, and how it could be controlled, transferred, and dealt with by interested parties.

Section 8 of the DAL defines a digital asset as a notional quantity unit that is formed by software operations in a network, that does not belong to a singular person or legal system, whereby its consumption by one person does not impact another party’s use of said digital asset. Furthermore, Section 9 of the DAL highlights that a digital asset is ‘intangible property and is neither a thing in possession nor a thing in action’.

The explicit definition of digital assets eliminates prior uncertainties, allowing market participants to operate with a clearer understanding of the legal status of their digital holdings.

Control and Legal Title of a Digital Asset

Control:

The DAL defines the control of a digital asset as having the capacity to prevent others from benefitting from said digital asset, the ability to make use of all the benefits of the digital asset, and the exclusive ability to transfer said benefits to another party, as set out in Section 10 of the DAL.

Title:

According to Section 11 of the DAL, a party has a legal title to a digital asset once control is proven, as set out above, and if the party has an intention to make use of the digital asset. Once the party acquires the legal title to a digital asset, he remains an owner of the digital asset and the title to the digital asset does not cease to exist until the digital asset is either destroyed or transferred.

Amendments to Existing DIFC Laws

Following the enactment of the DAL and the extensive review of the legal approaches being taken to cater for digital assets, existing DIFC laws such as the Contracts Law, Law of Obligations, Law of Security, Law of Damages and Remedies, Trust Law, and Foundations Law, have also been amended through the DIFC Amendment Law, No.3 of 2024, to include guidance for issues arising in relation to digital assets. For more information on this, you could visit the DIFC legal database to find the amended regulations.

Conclusion

The introduction of the DAL is expected to have a significant impact on the market, by attracting more institutional investors and established financial firms to the digital assets space. This enactment also creates opportunities for existing businesses in the DIFC to expand their horizons into the digital assets space, within a well-defined legal framework.

We will continue to monitor the upcoming measures being taken by the DIFC in relation to the integration of digital assets. Our firm is available to assist in navigating these changes and to leverage the opportunities created with this new regulatory landscape. Should you require further information, do not hesitate to contact us.