End of payment tokens regulation transition period signals ‘new phase’ for UAE digital asset regulation

The one-year transitional period under the Central Bank of the UAE’s (CBUAE) Payment Token Services Regulation (PTSR) (101-page / 1.89MB PDF) officially ended in June, ushering in a new era of compliance and operational oversight for digital payment token services in the UAE. The regulation now fully applies across mainland UAE, excluding the financial free zones, and businesses operating in the digital payment token space must ensure they are fully licensed or registered to continue offering services.

The end of the transitional period, along with the licensing of AE Coin, the UAE’s first regulated UAE stablecoin provider, by the CBUAE in December 2024 by the CBUAE, signals that the framework is now moving into full operational effect, marking a critical step in the country’s transition toward a regulated digital asset ecosystem.

Payment tokens are digital assets designed to maintain a stable value by pegging them to sovereign currencies, such as the UAE dirham, pound sterling or US dollar, and are increasingly gaining in popularity due to a convergence of technological, regulatory and market-driven factors.

What is changing now?

The PTSR sets out a comprehensive framework for the regulation of digital payment token services in the UAE, including the licensing and supervision of entities looking to conduct payments under three categories: payment token issuance, payment token conversion and payment token custody and transfer.

With the transition period now over, entities offering payment token services in the UAE are required to meet the licensing and operational standards set out by the CBUAE, particularly in relation to consumer protection, anti-money laundering and cybersecurity.

Additionally, the CBUAE’s decision to permit businesses and vendors in the UAE to accept CBUAE-approved stablecoin cryptocurrencies for payments marks a significant step toward the mainstream adoption of digital assets and digital payment options. It also opens up new opportunities for merchants to tap into a broader customer base, including international users, while ensuring that transactions remain anchored to trusted fiat currencies.

These developments, alongside the CBUAE’s planned introduction of the digital dirham, underscore the UAE’s continued commitment to building a token-ready system, and mark a critical step in accelerating the country’s digital and financial ecosystem. The growing popularity of stablecoins in recent months has underscored the need for a clear and robust regulatory framework to ensure financial stability, consumer protection and innovation.

The UAE’s introduction of the digital dirham - a central bank digital currency (CBDC) – is an important step in this direction. By establishing a regulated digital currency alongside permitting stablecoins, the UAE is creating a more secure and interoperable financial ecosystem that balances innovation with appropriate regulatory oversight. This dual approach not only enhances trust in digital assets but also helps to positions the UAE as a leader in shaping the future of digital finance.

The wider context

The PTSR forms part of the CBUAE’s broader strategy to modernise the financial ecosystem, providing clarity and oversight for digital payment instruments while supporting innovation. These developments also follow moves by the CBUAE to implement its Open Finance and Sandbox Regulations, thereby cementing its position at the forefront of digital transformation and enhancing the country’s position as an attractive destination for fintech growth.

Implementation of the PTSR is also expected to accelerate the development of innovative financial solutions, including solutions which can facilitate cross-border transfers and make them cheaper and easier for businesses. The framework opens the door for the development of cross-border payment solutions using stablecoins and tokenized currencies, potentially reducing friction and costs in international trade and remittances.

Other countries are also rapidly progressing regulation in this area. In July, the US Congress passed the so-called ‘GENIUS Act’ which regulates stablecoins that are linked to sovereign currencies, such as USDC, which is pegged to the US dollar. In May, the UK published draft legislation to regulate certain types of cryptoassets.