coindesk.com
Dubai’s financial regulator banned privacy tokens from use across the Dubai International Financial Centre (DIFC), citing anti-money laundering (AML) and sanctions compliance risks, as part of a sweeping update to its crypto rules that also shifts token approval responsibility onto companies and tightens the definition of stablecoins.
The updated Crypto Token Regulatory Framework, which comes into force Jan. 12, positions the Dubai Financial Services Authority (DFSA) as a regulator focused less on approving individual crypto assets and more on enforcing global compliance standards.
The prohibition comes as privacy coins such as zcash ZEC$396.42 have seen renewed interest from traders, with monero XMR$576.76 crossing an all-time high on Monday. The ban applies broadly across trading, promotion, fund activity and derivatives in or from the DIFC.
Elizabeth Wallace, associate director for policy and legal at the DFSA, framed the decision as unavoidable for a jurisdiction that aims to remain aligned with international regulatory norms.
“[Privacy tokens] have features to hide and anonymize the transaction history and also the holders,” Wallace said in an interview with CoinDesk. “It’s nearly impossible for firms to comply with Financial Action Task Force requirements if they are trading or holding privacy tokens.”
FATF’s mandate is that firms need to be able to identify all parts of the crypto transaction, including the beneficiary and the originator, according to Wallace.
"Most of the requirements around anti-money laundering and financial crime wouldn’t be met if you engaged in privacy tokens,” she said.
Beyond banning privacy tokens, the DFSA rules also prohibit regulated firms from using or offering any privacy devices such as mixers, tumblers or obfuscation tools that hide transaction details.
The ban contrasts with Hong Kong, which still allows privacy tokens in theory under a risk-based licensing regime that makes them hard to list in practice. The European Union moved furthest, effectively pushing privacy coins and mixers out of regulated markets through MiCA rules and an upcoming ban on anonymous crypto activity.
Stablecoins, redefined
Stablecoins are another focal point of the updated rules. The DFSA tightened its definition of what it calls "fiat crypto tokens," reserving the category for tokens pegged to fiat currencies and backed by high-quality, liquid assets capable of meeting redemption demands during periods of stress.
“Things like algorithmic stablecoins, it’s a little less transparent about how they operate and being able to redeem them,” Wallace said, adding that the DFSA’s approach aligns with other regulators emphasizing asset quality and liquidity.
Asked about Ethena, one of the fastest-growing algorithmic stablecoins, Wallace said it would not qualify as a stablecoin under the DIFC framework, though it would not be banned outright.
“In our regime, Ethena wouldn’t be considered a stablecoin,” she said. “It would be considered a crypto token.”
Industry-led approval process
Beyond privacy tokens and stablecoins, the revised framework marks a significant shift in how crypto assets are approved for use in Dubai’s financial free zone.
Rather than publishing a list of approved tokens, the DFSA will now require licensed firms to assess and document whether the crypto assets they offer are suitable, and to keep those decisions under ongoing review.
The change, Wallace said, was driven by industry feedback and reflects a maturing market rather than a lighter regulatory touch.
“The feedback from firms was that the market had evolved,” she said. “They themselves had evolved and become more familiar with financial services regulation, and they want to have the ability to make that decision themselves.”
Wallace said the approach aligns with the thinking of other international regulators that responsibility for asset selection should rest with firms, not supervisors.
In Dubai’s view, crypto’s future inside a global financial center belongs to asset firms that can explain, defend, and supervise, with regulators less interested in blessing tokens than in forcing companies to own the consequences of listing them in a market where traceability, accountability, and compliance are non-negotiable.