Moody's and Fitch: "Dubai's Digital Asset Law is an Important Step"

The law enacted by the Dubai International Financial Center is the first of its kind

Global Economy 18.03.2024, 16:04
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Moody's and Fitch: "Dubai's Digital Asset Law is an Important Step"

Moody's and Fitch Ratings affirmed that "the Digital Assets Law issued by theDubai International Financial Center (DIFC) is an important step forward for digital assets and the Islamic finance sector," noting that "it could pave the way for new digital finance products and services." "The DIFC's move to update its property and securities laws in relation to blockchain capabilities could support growth in digital asset startupsby attracting market participants to the free zone," Moody's said.

"This could pave the way for new digital finance products and services," the agency said in comments after the DIFC announced the Digital Assets Law. "The equalization of electronic transferable records under theupdated Code of Obligations to fulfill the functional role of commercial paper or documents such as invoices, bills of lading, bills of exchange, bonds and warehouse receipts is similar to existing national frameworks," it added.

FIRST DIGITAL ASSET LAW

The Dubai International Financial Center (DIFC) announced the publication of the world's first digital asset law, a new security law and amendments to existing legislation to meet the requirements of the new digital asset regime and amend the security regime. The legislative amendments aim to ensure that DIFC law keeps pace with the rapid developments in international trade and financial marketsdriven by technological advances and to provide a transparent legal framework for users and investors in digital assets.

ELECTRONIC TRANSFERABLE RECORDS

The amendments to the Code of Obligations also provide for the use of electronic transferable records. Electronic transferable records are functionally equivalent to paper-based commercial documents or instruments such as bills of lading, bills of exchange, promissory notes and warehouse receipts. Electronic recognition of these documents enables greater efficiency in cross-border digital trade by increasing the speed and security of document transfer and allowing certain transactions to be automated through smart contracts.

Bashar Al-Natour, Global Head of Islamic Finance at Fitch , said: "The Digital Assets Bill represents a significant step forward for digital assets and the Islamic finance industry, and it will be interesting to see whether this development provides much-needed regulatory clarity, supports market stability, and spurs innovation and interest, which is critical for the industry in the region as well as the Islamic finance industry moving forward."

"Clear and comprehensive regulations are generally viewed positively if they reduce the legal and operational uncertainties associated with digital assets, which can encourage innovation while balancing the risksassociated with digital assets, including market volatility, cybersecurity risks and the potential for financial crime ."

UNIQUE COMBINATION

Al-Natour added: " Nasdaq Dubai, located in the Dubai International Financial Center, is one of the best locations for the Sukuk market with more than US$85 billion in Sukuk, this intersection between digital assets and Islamic finance could provide a unique combination of opportunities and challenges for the Islamic finance industry. It will be interesting to know the actual adoption of the law in general and, more specifically, whether we will see Shariah compliant digital assets as a result."

"Digital assets can offer the Islamic finance industry innovative products and more efficient transaction mechanisms. It can promote the transparency inherent in Islamic finance principles such as smart contracts, which can simplify transactions, reduce costs and improve the efficiency of Islamic finance products. However, ensuring that digital asset transactions and contracts are Shariah compliant can pose a number of challenges."

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