Understanding virtual asset regulations in the UAE
In recent years, crypto-assets have rapidly increased in popularity among both private and institutional investors and become an asset class of their own.
In response policy makers, governments and regulators around the world have sought to tackle the risks arising from this new asset class and protect investors while still encouraging innovation to thrive.
Different jurisdictions have taken varied approaches to crypto-assets, and activities related to them. Some like China and India have banned crypto-asset related activities almost entirely. Others have sought to apply existing financial regulations to crypto-asset related activities (like some European countries and the United States).
A few countries like Switzerland, Liechtenstein and Malta have embraced this new industry by creating crypto-friendly regulatory frameworks with the aim of positioning themselves as crypto-hubs.
In the article below we look at recent developments concerning crypto-assets in the United Arab Emirates (UAE) and the key regulators involved.
The UAE has in recent years seen a number of legal developments in the area of regulating virtual assets. With the UAE being a federal state and the two largest emirates having designated financial service oriented free zones, there are multiple regulators involved, the most important ones being:
- the UAE Central Bank (CB) and UAE Securities and Commodities Authority (SCA) that both have a mandate to regulate matters on a federal level for all emirates and typically also free zone territories, excluding the DIFC and ADGM free zones
- the Dubai Financial Services Authority (DFSA) regulating financial services in the Dubai International Financial Centre (DIFC) free zone
- the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) regulating financial services at the ADGM free zone
- the Dubai Multi Commodities Centre Authority (DMCCA) having the supervisory role over the DMCC Crypto Centre established at the DMCC free zone
- the Dubai Virtual Assets Regulatory Authority (VARA), the latest addition to the list of regulators, which is affiliated with the Dubai World Trade Centre Authority (DWTCA) and has been established to regulate any virtual asset-related activities in the Emirate of Dubai (including the free zones, except the Dubai International Financial Centre (DIFC)).
At the outset, when virtual assets started to gain interest from a broader public audience, UAE regulators have taken different approaches to whether virtual assets shall be permitted within a regulated framework or prohibited altogether.
Since 2018 the FSRA at the ADGM has already amended its laws and regulations to provide a framework for virtual asset-related activities and products. At that time SCA, CB, and DFSA were opposed to virtual asset-related activities being permitted in the UAE.
However, SCA and CB changed their position in 2020-2021 and DMCCA was given authorisations by SCA at the same time. Lastly, towards the end of 2021, the DFSA also revised its initial position and started issuing regulations to permit certain virtual asset-related investment activities to be undertaken from and within the DIFC.
Most recently, with the issuance of the Dubai Law No.4 of 2022 on the Regulation of Virtual Assets, the topic of virtual assets and related services has brought the Emirate of Dubai back into the spotlight. Potential investors, either already acting in this space or intending to provide services in connection to virtual assets, are showing increasing interest in establishing or moving businesses to Dubai.
They want to take advantage of the combined benefits of Dubai as a hub that:
- serves the Middle Eastern, African and South Asian markets
- offers a dynamic legal framework that's regularly updated to adapt to businesses’ needs in the digital space and generally attracts an increasing amount of talent from around the world
- invites international investors to use unique opportunities that are widely seen as second to none.
Following some initial licences being granted to reputable providers, including two of the world’s largest cryptocurrency exchanges - Binance (receiving a licence to conduct some operations in Dubai in March 2022) and Kraken (receiving a licence to operate its virtual asset trading platform in Abu Dhabi in April 2022) - we envisage this trend will continue.
Further changes to the legislative framework will certainly happen along the way as the digital assets market develops. As an example, ADGM’s latest consultation (that closed in May 2022) included a possible permission for regulated Multilateral Trading Facilities/Custodian groups within the ADGM to conduct non-fungible token activities.
For a more in-depth review of crypto regulation in the UAE, download our 2022 comparative guide here. Similar guides for the EU and UK are also available.