Regulatory Update: Regulation of Virtual Assets in the UAE17 July 2023

Regulatory Update: Regulation of Virtual Assets in the UAE

Over the course of the last few years, the UAE progressively and proactively sought to position itself as the regional hub for technology and is now putting in place the necessary measures with the objective of becoming a pioneer for blockchain innovation.

The country is host to several cryptocurrency exchange and trading platforms and has issued regulations governing them and established authorities such as the Virtual Assets Regulatory Authority, specifically designed to monitor and supervise dealings concerning virtual assets (including crypto currencies), in Dubai.

In furtherance of this objective, the UAE made several announcements and developed additional regulations during the first half of 2023 directly relevant to the crypto universe.

Ras Al Khaimah (“RAK”) Digital Assets Oasis

The UAE has recently announced the establishment of the RAK Digital Assets Oasis – the first and only free zone in the world exclusively designated for digital and virtual asset companies that are innovating in new and emerging sectors, such as: the metaverse, blockchain, utility tokens, virtual asset wallets, non-fungible tokens (“NFTs”), Decentralized Autonomous Organizations (“DAOs”), DApp Systems, and other Web3-related businesses.

Sheikh Saud bin Saqr Al Qasimi, ruler of the Emirate of RAK said in recent statements that “Ras Al Khaimah has been playing a leading role in national efforts to strengthen the UAE’s diversified, sustainable economy … With the nation’s focus on digitalisation and encouraging enterprises of the future, RAK Digital Assets Oasis will serve as the gateway for global digital and virtual assets companies to establish their operations and grow their business”.

The establishment of this Digital Assets Oasis reinforces the country’s commitment to advance and regulate the rapidly growing cryptocurrency sector in the UAE. According to a report issued by the Dubai Chamber of Digital Economy in February 2023, the establishment of the RAK Digital Assets Oasis will significantly contribute to the growth of the national digital economy growing it to more than US$140bn in 2031, up from nearly US$38bn currently.

Virtual Assets Regulatory Authority (“VARA”)

In February 2023, VARA which has been described as “the world’s first, tailor-made Virtual Asset regime” issued its Full Market Product (“FMP”) Regulations. The FMP Regulations encompass a host of regulations applicable to all virtual asset providers. They govern market conduct, licensing, company operations, and cybersecurity. The FMP Regulations also introduce a series of activity specific regulations designed to regulate VARA licensed companies in a targeted fashion with each company being subjected to specific regulations depending on the nature of its license.

Securities and Commodities Authority (“SCA”) and UAE Central Bank

In February 2023, the SCA, being the UAE’s federal securities regulator, took over the regulation and supervision of the cryptocurrency sector earlier this year. With effect from 17 April 2023, the SCA also started accepting applications from companies intending to provide cryptocurrency services within the country. All virtual-asset service providers in the country, except those already licensed in UAE’s financial-free zones, have been directed to apply for approval.

The UAE Central bank will continue to regulate any crypto payments.

In May 2023, the UAE Central Bank supplemented its existing regulations by issuing anti-money laundering and counter-terrorism financing guidance for financial institutions when dealing with virtual assets, such as cryptocurrencies and non-fungible tokens.

While the regulation of crypto assets continues to develop at a federal level, certain Emirates have established local specific regulations and supervisory authorities to oversee and regulate crypto dealings, imposing further licensing and disclosure requirements on crypto companies operating within that Emirate. Dubai’s VARA is an existing example of this development, but Ras Al Khaimah is expected to follow in a similar manner particularly in light of the establishment of RAK’s Digital Assets Oasis.

The introduction of all these new regulations both at a Federal and local level will enhance supervision of crypto dealings following increased scrutiny by the Financial Action Task Force (“FATF”). The UAE Central Bank issued a statement noting the guidance introduced takes the FATF’s standards into account.

For advice on any crypto licensing requirements in the UAE, please contact our specialist team.

Click here to read the first article in this series where Haya and Charlotte provide an overview of crypto asset regulation in the United Arab Emirates.