“The future belongs to whoever designs it … and today, through the virtual assets law, we seek to participate in the design of this new and rapidly growing global sector.” Said H.H. Sheikh Mohamed bin Rashid Al Maktoum.
On 28 February 2022, H.H. Sheikh Mohammed bin Rashid, Ruler of Dubai, ratified Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai (the “VA Law”). The law has been published in the Dubai Official Gazette and is effective as of 11 March 2022.
The VA Law provides a clear definition of Virtual Assets as a digital representation of value that can be digitally traded, transferred, or used for exchange, payment or investment. The VA Law also defines Crypto Tokens as a digital representation of a group of rights that can be issued and traded digitally through a virtual assets’ platform. It is unclear whether this includes NFTs. Distributed Ledgers Technology (“DLT”), Blockchain and Crypto Platform are also well-defined under the VA Law. Unprecedently, the VA Law recognized both permissioned and permissionless distributed ledgers. This is a good move towards limiting peer-to-peer and other less formal and decentralized exchanges and crypto trading channels and would also motivate investors to onboard with exchange platforms, which could ultimately lead to less investors’ fraud and market integrity risks by ring-fencing and mitigating operational, cyber and governance risks.
In most jurisdictions, overseeing financial markets is conferred on securities regulators. Similarly in Dubai, the Securities and Commodities Authorities (SCA), which is a federal authority, has been regulating and monitoring all UAE’s financial markets and securities-related activities for decades. The VA Law, however, introduced a new model of having an independent regulator for virtual assets and crypto business by establishing the Dubai Virtual Assets Regulatory Authority (“VARA”), which is affiliated with the Dubai World Trade Centre (“DWTCA”). This setup would allow VARA to apply effective supervision within a defined regulatory framework without creating regulatory arbitrage and curtail enforcement.
VARA is authorized to regulate, oversee, license, and monitor crypto business across Dubai, whether established in mainland jurisdiction or at any development or freezone, except for the DIFC. According to Article 15 of the VA Law, engaging in crypto business in Dubai is no longer permitted unless licensed by VARA. It is anticipated that the licensing process, as will be later disclosed by VARA, will come with a lot of ongoing requirements surrounding onboard screening, organization, disclosures, capital, and transparency, along with surveillance of financial integrity by strictly maintaining high measures for anti-money laundering and combating the financing of terrorism (AML/CFT). Article 15 also mandates that a NOC should be granted by VARA prior to proceeding with the set-up process with the Department of Economic Development (“DED”).
The VA Law sets out in Article 16 a list of activities that will be licensed and monitored by VARA:
- Operating and administering virtual assets/crypto platforms.
- Exchange of virtual assets with FIAT currencies or with other virtual assets.
- Virtual asset custody and management services.
- Managing virtual assets portfolio and wallets.
- Providing services relating to virtual assets’ issuance and trading (it is yet to be clarified whether this includes mining, ICOs and brokerage activities).
The VA Law grants VARA the authority to include further activities and services to the foregoing list of activities subject to the DWTCA approval. This would allow VARA to cope with the fast-paced crypto business and developing needs of crypto investors and virtual assets service providers.
It is imperative to have the executive regulations of the VA Law, as will be issued by the DWTCA soon, to get more clarity on the licensing process and its requirements.
We believe crypto ecosystem adoption in Dubai has outpaced that of advanced economies.
Our specialist crypto lawyers remain available and ready to assist and answer any of your questions in relation to the licensing process.
For any questions or inquiries, please feel free to contact us.