The AE Coin Approval
In a significant development for the UAE's financial landscape, the country has introduced its first-ever dirham-backed stablecoin – AE Coin, launched by AED Stablecoin LLC, following approval from the UAE Central Bank ("CBUAE") under the Payment Token Services Regulation.
This approval of a stablecoin pegged to the UAE Dirham ("AED") marks a pivotal moment in the nation's digital transformation, specifically targeting the blockchain and cryptocurrency sectors. AE Coin is the first Dirham Payment Token Issuer, representing CBUAE's commitment to regulating digital assets and fostering innovation while maintaining financial stability and consumer protection.
Requirements for the Licence
As detailed in an article we published earlier, " Securing Digital Finance: An Overview of the UAE's Payment Token Services Regulation," the regulatory landscape requires any AED-backed stablecoin to adhere to several strict criteria, particularly concerning asset reserves and operational oversight. A few of the important requirements are outlined below:
Capital Requirements: The issuer must maintain an initial and ongoing capital of at least 15 million AED and hold additional ongoing capital of at least 0.5% of the fiat currency face value of all outstanding tokens.
Reserve of Assets: The tokens are required to be fully backed by fiat currency reserves held in escrow accounts. As such, the AE Coin should maintain a 1:1 reserve in AED for each token issued.
Redemption Rights: Token redemption must always be enabled, allowing users to convert their tokens back to AED at face value.
Governance and Oversight: As part of the licensing process, the issuer must have comprehensive governance arrangements, risk management procedures, and business continuity plans.
AML/CFT Compliance: The issuer must adhere to robust anti-money laundering and combating the financing of terrorism policies. This includes conducting risk assessments, customer due diligence, and ongoing monitoring.
Licensing Process
Step 1: Meeting the CBUAE
- The CBUAE's official licensing manual governs the licensing process for applicants.
- Before applying, a preliminary meeting with the CBUAE to discuss the business plan in detail is encouraged.
- Application forms can be obtained directly from the licensing division.
Step 2: Submission of the application form
- To apply, applicants must submit a fully completed form and the required documents, as outlined in the annexure to the Payment Token Regulations.
Step 3: Submission of additional information
- The CBUAE will likely seek further information to finalise its decision, and delays may arise if the application is incomplete.
- In such cases, the application will be marked as a "draft," and the required information must be submitted by a specified deadline.
Step 4: Obtain the licence
- The Central Bank will approve an application once all regulatory requirements have been satisfied and provide the company with a unique licence reference number.
Conclusion
The approval of AE Coin by the UAE Central Bank is a landmark moment in the country's digital finance journey. By launching the first AED-backed stablecoin, the UAE has positioned itself at the forefront of global fintech innovation while ensuring the necessary safeguards to protect its financial ecosystem. As AE Coin begins its journey, it will serve as a key catalyst for licensing more stablecoins and other virtual asset service providers in the UAE.
Originally published October 14, 2024
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