UAE Ruler of Dubai, Vice President and Prime Minister, His Highness Sheikh Mohammed bin Rashid Al Maktoum, has issued the Dubai Virtual Asset Law and erected the Dubai Virtual Assets Regulatory authority. The aim is to create an advanced legal framework to protect investors and design standards for virtual asset (VA) industry governance.
Dubai Virtual assets Law
The virtual assets law will have jurisdiction over the Dubai Emirate, including special development zones, and free zones. The Dubai International Financial Center (DIFC) will not fall under the jurisdiction of the virtual assets law or the VA regulator. Recently the DIFC regulatory entity issued its consultation for crypto asset regulations which did not include NFTs.
The Dubai Virtual Asset Regulatory Authority (VARA) authority has legal personality and financial autonomy and will be linked to the Dubai World Trade Centre Authority (DWTCA). The establishment of the Dubai Virtual Asset Regulatory Authority comes as a part of the strategy of the Dubai Securities and Exchange Higher Committee.
H.H Sheikh Mohammed in a tweet stated, “The future is for those who design it, and today we participate in the future of virtual assets globally. We will make available the best environment for virtual assets in terms of regulation, governance and security, and adhering to local and global financial systems.”
UAE’s move into the realm of regulating virtual assets is a leap towards the future driven by the need for sector regulation, protection of investors and those working with virtual assets.
As per the announcement the new virtual asset law will raise Dubai’s and the UAE’s position as a regional and global destination for virtual asset sector as it will provide the necessary regulations to protect investors and users of this sector and attract investments and companies in this domain, making the UAE a center for their business.
This is already starting to be realized as sources close to Binance told Bloomberg just after the announcement that they are in talks to obtain a license from the Dubai World Trade Center Authority for a virtual asset service provider. Binance had been courting UAE over the past few months and had announced the setting up of a virtual assets hub in DWTC specifically. CoinMENA crypto exchange had also signed an MOU with DWTCA to develop crypto asset and Blockchain hub.
Hilal Asaad Al Marri, Director General of Dubai Trade Center Authority stated in the Virtual Asset law announcement, “The law which is the first of its kind is a comprehensive law and the virtual assets regulatory authority will cement Dubai’s and UAE’s position in the virtual asset domain and attract talent to this growing global industry. The authority will offer all the services needed for virtual assets in collaboration with a huge number of partners that includes the Central Bank, and the UAE Securities and Commodities Authority.”
It is noteworthy that 24 hours before Sheikh Mohammed announced the Dubai Virtual Assets Law and regulatory authority, the UAE Securities and Commodities Authority announced that it had finalized its virtual asset consultations. The Securities and Commodities Authority virtual asset regulation would have jurisdiction over the entire UAE, given that it is a federal entity.
Previously DWTC (Dubai World Trade Center Authority) and DMCC (Dubai Multi Commodities center) had been working with UAE SCA to act as licensing authorities. The recent Dubai Virtual assets law would seem to negate all previous arrangements. This raises questions as to the status of crypto entities in DMCC, Dubai Airport free zone as well as Dubai Silicon Oasis.
As per the Dubai virtual asset law, the Dubai Virtual Assets regulatory authority aims to achieve a wide number of goals, the first is raising Dubai’s position as a regional and international player in the virtual assets sector and all the services related to it. It will aim to increase the competitiveness of Dubai both locally and internationally and digital economy as well as increase investment, and awareness while encouraging innovation.
The Dubai Virtual Asset regulatory Authority will also contribute to attracting investment and companies working in the domain of virtual assets making Dubai a headquarter for their operations, while enabling the necessary regulatory and legislative environment to protect investors and users of virtual assets. It will work to decrease the illegal activities in coordination with local authorities as well as set the rules standards regulatory oversight for these virtual assets and their service providers and all those related
The law will become effective on the date of its publication in the official gazette.
Scope of Dubai Virtual Asset Regulatory Authority
The Dubai VA regulatory authority will regulate and oversee the issuance of virtual assets, virtual tokens ( NFTS and others) and their platforms, as well as license Virtual asset service providers as per the requirements procedures and controls to ensure they adhere to the laws and decisions of Dubai.
The Dubai VA Regulatory authority will regulate and legislate as well as set the governance models for activities in Dubai pertaining to Virtual Asset Service Providers, the selling and clearing of virtual assets, virtual custody service providers, in addition to defining the various variation of virtual assets and virtual tokens (could entail NFTs as well) and the rules and standards for their transactions.
The VA Regulatory authority will also oversee crypto exchange virtual exchanges, blockchain networks, virtual asset wallets, as well as overseeing the trade and transaction and ensuring that there is no manipulation in the prices of these virtual assets protecting investors and users.
The VA Regulatory authority will work with other parties to issue the instructions and advices on the situations of virtual assets providers, educating users on how to deal with virtual assets as well as the risks. It will also participate in exhibitions webinars, economic conferences on regional and international level pertaining to virtual assets. It will levy the license fees and other fees and work with UAE Central Bank for the protection and stability of the financial system in the UAE.
According to the law, it is prohibited for any person in the Emirate to engage in activities without VARA authorization. The person wishing to practice any of the VA activities must establish a presence in Dubai to conduct business.
The activities that fall under VAR Licensing:
1. Virtual asset operators and platforms
2. Virtual asset transaction services either national or international
3. Exchange of one or more than one form of virtual asset
4. Virtual asset transfer services
5. Virtual asset custodians or owners
6. Virtual asset wallet services
7. Token operators and platforms (could include NFT platforms)
The acts that constitute a violation of the provisions of this law and its related decisions, and the fines imposed on a violator, shall be determined by a decision issued by the board of directors of the Dubai World Trade Centre. In addition to the penalty of a fine, the VARA may take any of the following measures against the violator: to suspend the permit for a period not exceeding six months, cancel the permit, and coordinate with the competent commercial licensing authority in the Emirate to cancel the commercial license.
The future of Virtual asset regulations
In Conclusion, the new Dubai Virtual assets law comes at a time when countries and governments around the globe are working to regulate the crypto asset sector and ensure the AML compliance and KYC measures. US President Biden on the same day signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies, including CBDCs.
What remains to be seen is whether Dubai and the UAE can refute the recent claims made in an article in CNN, that Bahrain is the crypto hub of the region given that Central Bank of Bahrain and banking sector of Bahrain has banking regulations for crypto in place. Accepting cryptocurrencies as an official method of payment, the Central Bank of Bahrain allows established banks to work with exchanges so that customers can withdraw and deposit their money easily. It would seem that the new Dubai Virtual Asset Law and its VA regulator which has noted that it would be working with both the UAE Central Bank and the UAE Securities and Commodities Authority will set those claims to rest.