Exploring the Future: DIFC Foundations Law Amendments in the Era of Digital Assets

The Dubai International Financial Centre (DIFC) is set to undergo significant legislative changes with the introduction of the DIFC Laws Amendment Law, DIFC Law Number 2 of 2023. Among the various modifications proposed, one key focal point is the amendment to the "Foundations Law 2018," signaling a pivotal shift towards embracing digital assets within the DIFC legal framework.

Key Implication of the Proposed Amendment: The groundbreaking amendment aims to redefine the scope of assets eligible for possession by a DIFC Foundation by incorporating the term "digital assets." This strategic move confers upon DIFC Foundations the authority to possess, oversee, and transfer a spectrum of digital assets, including cryptocurrencies, tokens, smart contracts, and other electronic records carrying intrinsic value or associated rights.

This forward-looking amendment underscores the DIFC's commitment to innovation and its proactive stance in embracing cutting-edge technologies. By expanding the range of assets, the DIFC enables Foundations to enhance portfolio diversification, manage assets more dynamically, and pursue diverse objectives—be they charitable, family-oriented, or commercially driven.

Challenges Associated with the Proposed Amendment: While the inclusion of digital assets brings forth exciting opportunities, it also presents legal and practical challenges for DIFC Foundations engaging with this emerging asset class:

1. Volatility and Regulatory Uncertainty: Digital assets' fluctuating values and the evolving regulatory landscape across jurisdictions pose challenges for secure and stable management.
2. Security and Custody Concerns: Ensuring the safeguarding of digital assets against cyberattacks, fraud, or theft becomes paramount in the digital era.
3. Compliance Hurdles: Adhering to anti-money laundering, counter-terrorist financing, and sanctions regulations requires meticulous attention to detail and robust compliance measures.
4. Taxation and Accounting Implications: DIFC Foundations must navigate the intricate taxation and accounting landscape associated with holding, transferring, or disposing of digital assets.
5. Governance and Oversight: Establishing effective governance and oversight mechanisms for Foundation councils and officers concerning digital assets is essential for sustainable operations.
6. Enforcement and Dispute Resolution: Provisions for enforcing and resolving disputes related to breaches of trust, fiduciary duty, or contractual obligations involving digital assets need careful consideration.

Guidance for DIFC Foundations: Foundations intending to engage with digital assets should proactively seek legal advice and guidance to navigate the implications and requirements of the proposed amendment. This includes a thorough understanding of the draft Digital Assets Law, as well as any other pertinent DIFC laws and regulations. In doing so, DIFC Foundations can position themselves to capitalize on the opportunities presented by the evolving digital landscape while mitigating potential risks.

In conclusion, the upcoming amendments reflect the DIFC's commitment to staying at the forefront of global financial innovation, providing a solid foundation for Foundations to adapt and thrive in the digital age.