CBUAE Payment Token Services Regulation The Central Bank of the UAE's Payment Token Services Regulation establishes the comprehensive framework for stablecoin issuance, custody, and payment services across all UAE jurisdictions.
Effective August 2024
Source: Central Bank of the UAE - Rulebook

What Is the Payment Token Services Regulation?

The Central Bank of the UAE (CBUAE) Payment Token Services Regulation is the UAE's primary framework for regulating stablecoins used for payment and remittance purposes. Unlike the other UAE regulators (VARA, DFSA, FSRA, SCA), CBUAE has UAE-wide jurisdiction over payment tokens.

This regulation is critical for any entity seeking to issue stablecoins in the UAE or provide payment services using stablecoins, as CBUAE authorization is required regardless of free zone location.

What Does the Regulation Cover?

Covered Activities

  • Issuing payment tokens (stablecoins) in or from the UAE
  • Providing custody services for payment tokens
  • Operating payment token conversion services
  • Facilitating payment token transfers for payment purposes

Payment Token Definition

  • Virtual assets that reference fiat currency value
  • Used or intended for use as a means of payment
  • Stablecoins fall within this definition
  • Excludes tokens used purely for investment purposes

Geographic Scope

  • UAE-wide application—including all free zones
  • CBUAE jurisdiction overrides free zone boundaries for payment tokens
  • Applies to both AED and foreign currency-referenced tokens
  • Foreign issuers serving UAE market need authorization

What Are the Issuer Requirements?

Authorization

  • CBUAE license required for payment token issuance
  • Separate category from traditional banking or payment licenses
  • Detailed application process with business plan review
  • Fit and proper assessment for controllers and management

Issuer Eligibility

  • UAE-licensed banks may issue payment tokens
  • Dedicated payment token issuers with CBUAE authorization
  • Adequate capital and financial resources
  • Robust governance and risk management

Operational Requirements

  • Technology and cybersecurity standards
  • Business continuity and disaster recovery
  • Internal audit and compliance functions
  • Customer complaint handling mechanisms

What Are Custody Service Requirements?

Authorization

  • CBUAE authorization required for payment token custody
  • Applies to entities holding tokens on behalf of others
  • Wallet providers serving UAE customers included

Custody Standards

  • Segregation of client assets
  • Secure storage including cold wallet requirements
  • Insurance or capital buffers for operational risks
  • Regular reconciliation and reporting

What Are the Reserve Requirements?

Reserve Composition

  • Full backing of outstanding payment tokens required
  • High-quality liquid assets only
  • Cash, bank deposits, and government securities acceptable
  • AED-referenced tokens must hold AED reserves in UAE

Reserve Management

  • Reserves held separately from operational assets
  • Custody with CBUAE-approved institutions
  • Regular valuation and reconciliation
  • Liquidity management for redemption demands

Transparency

  • Public disclosure of reserve composition
  • Regular third-party attestation
  • CBUAE reporting requirements
  • Annual audit of reserves

What Are the Special Rules for AED Stablecoins?

AED-Referenced Tokens

  • Stablecoins pegged to UAE Dirham face additional requirements
  • Reserves must be held in AED within the UAE
  • CBUAE maintains closer oversight of AED stablecoins
  • Potential monetary policy considerations

Policy Rationale

  • Protecting monetary sovereignty and AED stability
  • Ensuring payment system integrity
  • Maintaining CBUAE control over AED-denominated instruments
  • Consumer protection for AED-based products

What Should Financial Institutions Consider?

  • CBUAE authorization is mandatory for stablecoin issuance in UAE
  • UAE-wide jurisdiction—free zone location doesn't exempt from CBUAE
  • Reserve requirements align with international best practices
  • Banks have natural advantage for stablecoin issuance
  • AED stablecoins face heightened regulatory scrutiny
  • Coordination with VARA/DFSA/FSRA needed for trading activities

The Coinbax Perspective

CBUAE's Payment Token Services Regulation is the cornerstone of UAE stablecoin regulation. While VARA, DFSA, and FSRA regulate trading and investment activities, CBUAE governs the fundamental question of stablecoin issuance and payment use. Any serious stablecoin strategy in the UAE must start with CBUAE.

The regulation's UAE-wide application is significant—free zone boundaries don't apply. An entity licensed by VARA for stablecoin trading still needs CBUAE authorization if it wants to issue stablecoins or provide payment services. This creates a dual-licensing reality for comprehensive stablecoin businesses.

For financial institutions, the framework creates opportunities. UAE banks can leverage their existing CBUAE relationships for stablecoin issuance. Non-bank issuers face a higher bar but can compete if they meet the stringent requirements. The reserve standards are rigorous but provide the institutional credibility that enterprise users demand.

Frequently Asked Questions

Do I need CBUAE authorization if I'm licensed by VARA?

For stablecoin issuance or payment services, yes. VARA regulates virtual asset trading and investment activities. CBUAE has exclusive authority over payment token issuance and payment services using stablecoins, regardless of free zone licenses.

Can foreign stablecoins be used in the UAE?

Foreign-issued stablecoins (like USDC or USDT) can be traded on licensed platforms. However, entities offering payment services using these stablecoins may need CBUAE authorization depending on their activities.

What's special about AED stablecoins?

AED-pegged stablecoins face additional requirements including holding reserves in AED within the UAE. CBUAE maintains closer oversight given the implications for monetary policy and the UAE financial system.

Can banks issue stablecoins under this framework?

Yes, UAE-licensed banks are eligible to issue payment tokens under their existing CBUAE relationship, subject to meeting the specific requirements of the Payment Token Services Regulation. Banks have structural advantages in this framework.