Dubai’s financial regulator banned privacy tokens from use on exchanges 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 ban applies to regulated exchanges within Dubai, it does not mean residents can’t hold privacy coins in a private wallet.
The prohibition comes as privacy coins such as zcash (ZEC) have seen renewed interest from traders, with monero (XMR) crossing an all-time high on Monday. It 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.