UAE Central Bank Preliminarily Approves AED Stablecoin: AE Coin for Local Transactions

Source: Aiying Payment Compliance

The Central Bank of the United Arab Emirates (CBUAE) recently granted AED Stablecoin a preliminary approval, or in-principle approval, marking an important step in the company's journey to becoming the first regulated dirham stablecoin issuer in the UAE. This approval has injected new momentum into the UAE's digital currency sector and pushed the country towards its goal of becoming a global crypto financial center.

This development paves the way for future stablecoin use. Under the framework, only licensed dirham stablecoins can be used for payments. This not only eases concerns about payment restrictions that were previously raised due to the cryptocurrency regulatory framework issued by the Central Bank of the UAE, but also paves the way for future stablecoin use. If full approval is obtained, AED Stablecoin's AE Coin can be used as a local cryptocurrency trading pair on exchanges and decentralized platforms, and merchants can also accept it as a means of payment.

The core content of the Payment Token Services Regulation

The UAE Central Bank has provided a clear regulatory framework for companies that want to issue tokens pegged to fiat currencies through the Payment Token Services Regulation issued in June this year. Aiying's team has conducted an in-depth analysis of this regulation and sorted out the following important contents.

The Payment Token Services Regulation lays a comprehensive and clear regulatory foundation for the issuance and operation of digital assets and stablecoins. The following are the core contents of the regulation:

• Licensing requirements

• Who needs to obtain a license? Any company that wants to operate and provide payment token services in the UAE, whether domestic or foreign, whether it is payment token issuance, payment token conversion, or payment token custody and transfer, needs to obtain a license from the UAE Central Bank. This includes issuers of stablecoins pegged to fiat currencies and other service providers related to payment tokens.

• How to apply? Companies need to submit detailed application materials to the UAE Central Bank, including corporate structure, business plan, financial status and compliance measures. The application process requires companies to prove their ability to maintain the stability of tokens and protect the rights of consumers. Companies must also pass anti-money laundering (AML) and counter-terrorism financing (CFT) compliance reviews to ensure the legitimacy of funds.

• Reserve asset requirements

• The key to reserve assets is to ensure that the value of stablecoins is not affected by market fluctuations. The bill requires issuers to maintain sufficient reserve assets. This means that all stablecoins in circulation must be backed by an equivalent amount of fiat currency or highly liquid assets.

• How to ensure value stability? Issuers need to mark-to-market their reserve assets every day to ensure that the market value of the assets is equal to the face value of the tokens in circulation. For companies that issue tokens pegged to multiple fiat currencies, the bill requires them to set up independent reserve asset pools for each token to ensure that the value of each token is independent and stable.

• Data Protection and Consumer Protection

• Consumer Protection Measures The bill provides detailed provisions for consumer protection to ensure that payment token service providers are responsible for the security of customers' funds and data. Companies must establish strict security measures to prevent data leaks and fraud, and establish a transparent customer complaint mechanism.

• Data Protection The bill requires companies to comply with strict data protection policies, including data storage, backup and transmission. Companies need to ensure the security of customers' personal information and financial data during transactions to prevent unauthorized access or data leaks.

• Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) Regulations

• The Act imposes strict requirements on AML and CFT compliance. All payment token service providers must establish an effective AML/CFT policy, including customer identity verification (KYC) and monitoring of suspicious transactions.

• Compliance Process Companies need to appoint a dedicated compliance officer to be responsible for AML/CFT matters and report their compliance status to the central bank on a regular basis. Companies are also required to conduct internal audits to ensure that their operations meet global AML and CFT standards.

In order to protect market stability, the Act sets strict restrictions on certain services. For example, it is prohibited to issue or promote algorithmic stablecoins and privacy tokens in the UAE. In addition, the bill also restricts certain services related to foreign payment tokens to ensure that these services are only carried out under the premise of compliance.