DFSA To Organise Regulatory Sandbox To Enhance Tokenisation In DIFC

As part of the DFSA’s Innovation Testing Licence (ITL) programme – the licensed sandbox that allows firms to test innovation products and services in a controlled environment – it will provide firms with an opportunity to test tokenised financial solutions, offering a regulatory pathway from experimentation to full authorisation.

DFSA’s tokenisation sandbox

The DFSA’s Innovation Testing Licence has already been instrumental in supporting fintechs and digital finance pioneers in the Dubai International Financial Centre (DIFC). DFSA said that expanding its scope to tokenised investments reinforces the DIFC, Dubai, and the United Arab Emirates’ position as a leading global hub for digital finance.

The ITL Tokenisation Cohort is the DFSA’s version of a regulatory ‘sandbox’ focused on tokenisation-related activities, such as issuing, trading, holding, and settling tokenised investments. It allows firms to test and develop innovative financial products and services within a controlled regulatory environment, without being subject to the full suite of regulatory requirements which would otherwise apply.

By waiving or modifying certain prudential, capital, and other relevant requirements during this ‘testing’ phase, the DFSA ITL Tokenisation Cohort programme aims to facilitate firms’ entry into the market to test their innovation and subsequent scaling of business in the DIFC.

It also encourages responsible innovation in the DIFC whilst maintaining confidence in the financial services market and regulatory integrity. Enabling firms to test Distributed Ledger Technology (DLT) applications via the ITL Tokenisation Cohort could support market efficiencies, potentially leading to deeper and more liquid markets.

What is tokenisation?

Tokenisation is the digital representation of rights and obligations in relation to an asset on a programmable platform, such as a DLT, which enables safer, faster and cheaper transactions.

This innovation has the potential to facilitate new ways of using financial assets to serve end users and unlock new arrangements that were deemed impractical or impossible because of frictions in the traditional system.

Ownership is represented by a Token, governed by a smart contract, that is typically transferable from one person to another and recorded on a ledger. The exact process may vary depending on the DLT protocol and smart contract coding.

The background

The DFSA launched its regulatory framework for Investment Tokens in October 2021 to foster innovation within the DIFC in a measured, responsible, and transparent manner, whilst meeting its regulatory objectives.

While tokenisation has generated significant interest and is recognised for its potential benefits, the DFSA has yet to observe substantial activity or growth in the number of firms seeking to tokenise investments.

The DFSA hosted industry roundtables at the Dubai FinTech Summit in May 2024 and again in January 2025. These sessions with market participants provided insights into the opportunities, risks, and challenges presented by tokenisation.

During these discussions, a few key challenges were identified, including…

Interoperability: The need for seamless integration across platforms and ecosystems to ensure efficiency and scalability.

Required scale: Achieving critical mass for adoption of tokenised assets.

Customer education: The importance of education around how tokenisation works, including potential benefits and risks for businesses and consumers.

Regulatory clarity: Establishing clear and consistent regulatory frameworks to support innovation in this market.

Who should apply?

A note by DFSA said that Expression of Interest is open to firms engaged in tokenisation-related financial services, including…

• Firms issuing, trading, holding, or settling tokenised investments such as equities, bonds, sukuk, and collective investment fund units.
• Existing DFSA Authorised Firms looking to expand into tokenisation.
• Firms with a strong understanding of the applicable legal and regulatory requirements.

How to apply?

The Expression of Interest window is open from 17 March to 24 April 2025. Interested firms will undergo an assessment process, and ones with strong business models and regulatory understanding may be invited to participate in the Tokenisation Regulatory Sandbox, where they will receive tailored regulatory support and structured testing opportunities.

Expression of Interest can be submitted here: https://survey.dfsa.ae/f/136350/44dd/