The United Arab Emirates (UAE) has taken a relatively progressive stance towards cryptocurrency regulation. In fact, the government of the UAE has recently approved a new law that regulates virtual assets, creating the nation’s initial set of rules for the cryptocurrency industry at a federal level.
The regulatory framework includes guidelines for exchanges, initial coin offerings, and other crypto-related activities, and regulatory authorities, VARA and ADGM, have been working to strike a balance between promoting innovation in the crypto space and protecting investors.
These regulations aim to ensure that the crypto-assets are not used for illegal activities as well as to protect the interests of investors. However, the recent collapse of FTX highlights the importance of strong regulations to protect investors and users in the crypto space. It also shows that the regulatory authorities should be vigilant and take action against any illegal or fraudulent activity in the crypto space.
Bloomberg recently wrote, “Around 4% of FTX’s global customers are based in the UAE, according to court filings in the firm’s bankruptcy case. That makes it one of the top 10 jurisdictions impacted by the FTX fallout.”
With this in mind, it is obvious that a significant number of investors in the UAE have been affected by the collapse of the exchange, which has raised concerns about the level of protection offered to investors in the crypto space.
Kokila Alagh, Founder of KARM Legal Consultants in Dubai, explains to UNLOCK Blockchain the current regulations in place for protecting investors and users of FTX and how they could be improved.
She said, “At the Dubai level, a 2022 law created a legal framework for regulating virtual asset services providers, resulting in the creation of the Virtual Assets Regulatory Authority (VARA). The regulator is tasked with protecting investors and creating standards for VASPs on industry governance in Dubai. FTX was in the process of obtaining a license from the VARA, but the process was far from complete when FTX winded up.”
Alagh also pointed out that at the federal level, the UAE presents one of the strongest and most sophisticated jurisdictions for regulating virtual assets and VASPs.
She explained, “The UAE’s Securities and Commodities Authority’s Crypto Assets Activities Regulation (CAAR) lays down standards and requirements for issuers of securities, investors, custodians, crypto trading platforms, brokers and promoters who are engaged in the crypto asset industry and carry on any other financial activities in the UAE.”
The executive Cabinet Decision concerning the same is in the process of being finalized. The UAE’s monetary authority, the Central Bank of the United Arab Emirates also touches upon virtual assets, especially payment tokens (i.e. which are backed by one or more fiat currencies) and related services such as payment token issuing, buying, selling, exchanging, payments, and custody. The CBUAE also provides options for wallets storing virtual assets and Crypto Assets. Additionally, there are regulatory frameworks for virtual asset services from the ADGM and the DIFC,” she added.
Alagh also mentioned to UNLOCK that the UAE is amongst the first regulators globally to release such regulations, and as with all new regulations, the jurisdiction is also witnessing a steep learning curve. However, the UAE has definitely demonstrated its agility in learning and continuously improving its regulations.
When asked about the extent of regulatory action being taken against FTX in the UAE, Alagh said, “VARA has revoked FTX’s Minimum Viable Product (MVP) license. In fact, regulators clarified that no clients were exposed, as FTX MENA was still in the preparation phase before getting fully approved to operate.”
In addition to that, Alagh also pointed out that Binance has recently received a Financial Services Permission (FSP) to provide custody for digital assets to professional clients.
“Custody of digital assets helps in safekeeping the investors’ assets. An exchange may provide custody services itself or may outsource this function to a third party. Nevertheless, licensing requirements will differ accordingly, as the security of any customer assets is paramount,” she explained.
When questioned about how the collapse of FTX has affected UAE regulators and if there is still a drive for more adoption, Alagh made sure to highlight that adoption did not slow down.
She explained, “After FTX, VASPs have realized the importance of getting licensed. The FTX saga will only lead to more diligence being exercised. This is not only for VARA, but for all regulators in the UAE.”
She continued, “VARA will be releasing its final executive regulations soon, which will list all of its compliance and reporting requirements. This will allow the regulator to assess and monitor the domestic market exposure and the scale of the operations of VASP within the UAE.”
It should be noted that Dubai’s Virtual Assets Regulatory Authority appointed last week Henson Orser, former president of Nomura’s Japanese crypto project Komainu as the new CEO of VARA in Dubai.
Overall, the failure of FTX has underscored the significance of robust regulations for safeguarding investors and users of digital assets. Despite the existing regulations in place in the UAE, there is still a requirement for further measures to guarantee better oversight of such exchanges.
The regulators in the UAE have undoubtedly shown their ability to learn and improve their regulations continuously, which will facilitate the safer adoption of digital assets in the country.
Moving forward, the authorities will be focusing on ensuring compliance and reporting requirements are met with the aim of protecting investors and users in the crypto space.
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