On September 1, 2024, the Qatar Financial Center (QFC) has taken a major step towards becoming one of the leading crypto countries in the Middle East. In recent years, Qatar has actively developed its financial sector through initiatives such as the Third Financial Sector Strategic Planwhich focuses on modernizing regulatory frameworks and promoting innovation in fintech. The country has also made significant investments in digital infrastructure and technology, aiming to attract global crypto companies and position itself as a hub for digital asset activities in the region.

In accordance with the Plan, the digital finance sector has published the QFC Digital Asset Framework 2024 which consists of three key acts:

1. Digital Asset Regulations
2. Investment Token Rules
3. Investment Token Rules (Miscellaneous Changes)

These three laws are relatively brief and clearly written with the aim of collectively forming a comprehensive regulatory framework governing digital assets and investment tokens. These three laws are complemented by other laws, including the Companies Regulations, the Contracts Regulations and some other rules and guidelines.

The Digital Assets Regulations 2024 (DAR 2024)

This is the fundamental regulation for QFC digital assets. It defines key terms, such as tokens, permissioned tokens or token infrastructure, describing how tokens can be issued, transferred and held. In this regard, Articles 12 and 13 are very interesting, as they describe how an authorized token can be generated, following three key steps:

1. Validation: The owner of the asset to be tokenized obtains a validation certificate from a validator, confirming their ownership.
2. Tokenization request: The owner asks a token generator to create a token that represents his validated right.
3. Creation and control of tokens: The token generator creates the token on the designated infrastructure. It then offers the owner, or their representative (such as a custodian), the opportunity to transfer or manage the token.

Once a token is created, a validator issues a validation certificate.

DAR 2024 further established rules regarding token ownership, incorporating certain legal assumptions that could be challenged. It is assumed that a person who controls the authority to transfer an authorized token can be presumed to be the owner of the token. However, this presumption may be overruled by an order of the QFC court if it determines that the person has not lawfully obtained either: (a) control of the transferability of the authorized token, or (b) ownership of the asset underlying represented by the token.

Naturally, the rules regarding ownership have existed for centuries and we know that proving ownership of a digital asset can be both burdensome in terms of proof and very difficult in practice. Understanding what the proof part will look like will be very interesting.

DAR 2024 effectively establishes a separate regulatory zone for digital assets within the QFC, where broader state laws, rules, and regulations related to these matters do not apply. This approach allows the QFC to create a bespoke regulatory environment exclusively for digital assets, providing a controlled framework that operates independently of other national regulations. In theory, this allows the QFC to respond more flexibly to the unique challenges and opportunities of the digital assets sector while maintaining regulatory clarity and consistency within its jurisdiction. DAR 2024 effectively establishes a separate regulatory zone for digital assets within the QFC, where state laws, rules and broader regulations related to these matters do not apply. This approach allows the QFC to create a bespoke regulatory environment exclusively for digital assets, providing a controlled framework that operates independently of other national regulations. This in theory allows the QFC to respond more flexibly to the unique challenges and opportunities of the digital assets sector while maintaining regulatory clarity and consistency within its jurisdiction.

The Rules for Investment Tokens 2024 (TOKN 2024)

This law focuses specifically on investment tokens – tokens that represent rights to specified financial products or assets. It classifies investment tokens as financial instruments and aligns their treatment with existing financial services regulations.

The rules clarify the conditions under which investment tokens can be issued, traded and held, designating activities such as operating investment token exchanges and providing custody services as regulated activities. The framework ensures that investment tokens are processed in the same way to traditional investment assets, with appropriate regulatory safeguards in place. TOKN is accompanied by Miscellaneous modification rules, which ultimately introduces amendments to integrate investment token activities into various existing regulatory frameworks, such as anti-money laundering (AML) rules, customer protection guidelines, and investment management regulations. It ensures that token service providers (TSPs) comply with AML requirements, expands disclosure obligations for investment tokens in collective investment schemes, and clarifies standards for advertisements and custodial services related to these tokens.

Qatar, the next crypto destination?

This is a positive step forward for Qatar, demonstrating its ambition to become a key player in the global digital assets landscape. The new regulations demonstrate a clear intention to attract crypto entrepreneurs and foster a more vibrant ecosystem for digital assets, all under the close supervision (and control) of QFC.

However, the question remains whether Qatar can truly position itself as the next big crypto destination. While the intention to clarify regulations provides a solid foundation, much will depend on how effectively these rules are implemented and the capacity of the broader ecosystem, such as infrastructure, climate investment and talent pool, to meet the needs of emerging crypto companies.

The Governor of the Central Bank of Qatar, HE Sheikh Bandar bin Mohammed bin Saud Al Thani, highlighted the importance of this new direction, saying:

“The launch of digital asset regulations in 2024 marks an important milestone in our journey towards achieving the Third Financial Sector Strategy.”

Although at first glance this appears to be a promising start, further analysis of the regulations and their practical implementation will be essential. Qatar’s path to becoming a leading crypto hub will depend on its ability to adapt and evolve, as well as its willingness to compete with other global hubs that have already made significant progress in this area.