Picture for illustrative purposes only.
PHOTO BY ARCHIVE
DUBAI – Dubai residents woke up on Thursday (March 10) to the breaking news announcing the introduction in Dubai of the first virtual asset regulation. The news has shaken the crypto scene and has left many wondering about the impact it may have on their crypto investments and entrepreneurial projects.
Details about the regulation have not been published yet, and not much is known about its effect. However, here are 5 things we already know:
The regulation complements the regulatory approach of the UAE towards cryptocurrency and continues to place the UAE as a jurisdiction that is on the forefront of regulation.
By introducing the virtual asset regulation, Dubai is taking a step forward in creating a comprehensive legal framework to protect investors as well as to attract virtual asset start-ups to the UAE.
This step should be seen by stakeholders as a promising development of the virtual asset industry in the region.
The regulation has been announced and presented in the media as the “first” virtual asset regulation in the UAE. However, the Security and Commodities Authority (SCA) has issued in 2020 Decisions No.23 of 2020 concerning Crypto Assets Activities Regulation, which applies to anyone offering financial services relating to crypto assets in the UAE.
Furthermore, the Abu Dhabi Global Market financial free zone already has an exhaustive legal framework in place. As a result, the Regulation brings further clarity and strength to the existing regulations in the UAE and as such should be welcomed by the crypto community.
The major purpose of this new Regulation is the establishment of the first independent authority, the Dubai Virtual Asset Regulatory Authority (VARA), to oversee virtual assets activities in Dubai.
From what we know so far, VARA will also be responsible for regulating and licensing financial activities relating to virtual assets (e.g., operating and managing virtual assets platform, exchange services between virtual assets and currencies etc.).
While VARA has been described as an independent authority, we anticipate a close cooperation between VARA and other onshore financial regulators such as the UAE Central Bank and SCA.
The Regulation will apply in Dubai, including non-financial free zones such as the Dubai Multi Commodities Centre, Dubai Internet City and Dubai Silicon Oasis. This means that the new regulation is geographically limited and will not include Abu Dhabi or any financial free zones such as the Dubai International Financial Centre or the Abu Dhabi Global Market, which already have or are currently working on issuing their own virtual asset regulations.
Once the regulation is effective and VARA’s implementation becomes final, we anticipate VARA to issue a series of regulations and guidelines setting out the process and requirement of acquiring a license, the technical security requirements imposed on Virtual Asset businesses, anti-money laundering and KYC obligations to comply with and others.
As the UAE now boasts a standalone federal data protection legislation, there will be important data protection considerations to keep in mind when working with blockchain or other distributed ledger technology such as agreeing on shared data formats, classifying data before publishing it and overall protection of data privacy and confidentiality on a ledger.
About the writers
Nadim Bardawil is the Partner and Head of TMT, FinTech and Cyber, while Hala Harb is an associate at TMT & FinTech. With inputs from BSA Ahmad Bin Hezeem & Associates LLP
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