The UAE is reportedly preparing to begin issuing federal licenses for Virtual Asset Service Providers (VASPs) by the end of the first quarter of 2022. The move is expected to be part of a complex regulatory framework that the nation of the Middle East is considering. establish itself on its way to becoming one of the most crypto-friendly jurisdictions in the world. What might that trajectory look like for the UAE?
The proposed scheme
The UAE’s Securities and Commodities Authority (SCA) is reportedly finalizing rules that would allow digital asset firms to set up shop in the country. While working on the legislation, the SCA considered both Financial Action Task Force guidance and current legislative developments in the US, UK and Singapore.
In what has been described as a “hybrid approach”, the SCA will oversee the digital asset market in dialogue with the UAE Central Bank without directly interfering with institutions’ day-to-day licensing procedures. financial centers in the main financial centers of the country, such as Dubai and Abu Dhabi. The government also reportedly intends to create a regulated environment for crypto mining.
The United Arab Emirates is a federation made up of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. Usually, the federal government has the final say on financial matters, and the two main bodies that define financial regulation are the Central Bank of the United Arab Emirates and the SCA. However, the federation includes several free zones, which enjoy a certain autonomy in the development of financial rules.
Indeed, there are already about thirty PSAVs, operating in the free zones of the country. The Dubai Multi Commodities Center (DMCC) hosts 22 VASPs, the Abu Dhabi Global Market (ADGM) has six and the Dubai Silicon Oasis Authority (DSOA) hosts one.
Each of these centers is overseen by its own regulatory body. The ADGM corresponds to the Financial Services Regulatory Authority, while the areas of Dubai are under the authority of different agencies: the Dubai International Financial Center is regulated by the Dubai Financial Services Authority (DFSA), while the DMCC falls directly under the national jurisdiction of the SCA.
Patchwork of regulations
The current rules — understandably, in light of regulatory diversity — present a mixed picture. For example, the DFSA started rolling out its rules as recently as 2021. According to them, any entity operating a crypto exchange should seek DFSA approval. For now, however, this regulation only covers digital assets that qualify for “investment token” status. The DFSA intends to include cryptocurrencies and utility tokens in its framework at a later stage.
At the same time, the SCA, which oversees the DMCC and the UAE “onshore”, provides a much more detailed framework called “Crypto Assets Activities Regulation”. It contains a clear definition of crypto assets and applies to the majority of their forms.
Overall, despite having to navigate this regulatory diversity, the UAE appears to have a largely crypto-friendly legal environment. As Kokila Alagh, Founder and CEO of Karm Legal Consultants, previously told Cointelegraph, “Regulation has brought certainty and opened up new opportunities in the UAE, making SCA a progressive regulator in the global landscape. .”
In December 2021, news emerged that the Dubai World Trade Center would become another regulated digital asset business zone, with rigorous investor protection standards and anti-money laundering and anti-money laundering requirements. financing of terrorism.
The main intrigue surrounding the upcoming federal legislation is whether it will succeed in unifying this patchwork of rules under one roof.
A path to the crypto oasis
The UAE government started its crypto-friendly course years ago. The first regulations for the digital asset sector were established in 2018 in the ADGM. In the same year, the country implemented its “Emirates Blockchain Strategy 2021”, which involved using blockchain technology to “save time, effort and resources and enable individuals to perform most of their transactions in a timely manner, which suits their lifestyle and work. according to statements made at the time by Vice President and Prime Minister Mohammed bin Rashid Al Maktoum.
The initiative has set impressive goals, such as saving $3 billion a year in administrative expenses and millions of labor hours.
The strategy was accompanied by several more specific statements of intent, including a blockchain-based vehicle lifecycle management system to be launched by the Dubai Roads and Transport Authority and the creation of a Blockchain-based business-to-business platform for local hotel operators and tourism businesses. .
In November 2021, the postal operator of the United Arab Emirates announced that it would be the first in the Middle East to issue non-fungible token (NFT) stamps, celebrating the federation’s 50th anniversary. Several months earlier, the Central Bank of the United Arab Emirates had announced that it would launch trials of a national digital currency.
Launching a central bank digital currency project is a move that is often accompanied by a move towards restricting decentralized digital currencies. In the case of the UAE, however, the announcement of a CBDC seems to have little effect on the country’s willingness to embrace private innovation.
Why so friendly?
Speaking to Cointelegraph, Brad Yasar, co-founder and CEO of automated cash aggregator EQIFi, described the UAE’s openness to crypto as a pragmatic approach taken by the country’s leaders to ensure the diversification of his sources of wealth:
“The country’s historical reliance on commodities such as oil could be seen as a key driver of its dive into digital assets. The government quickly recognized the many benefits to be gained from digital assets for institutions and retail users, and therefore moved quickly to put in place the necessary supports to allow financial innovation to thrive.
Christian Borel, senior executive and branch manager of Swiss bank SEBA – which moved to open a regional office in the United Arab Emirates – highlighted the vast opportunities offered by the national approach to financial regulation as well as the strategic geographical advantages:
“The UAE has a number of characteristics that position it as an ideal global hub for the digital asset and blockchain industry. It is ideally positioned in terms of existing trade networks to take advantage of connectivity between the Middle East, North Africa, India and the West.
Both experts are optimistic about the prospects for the country’s digital assets, with Yasar stressing the importance of the recently proposed national licensing scheme for virtual asset businesses.
Borel expects the UAE to be “at the forefront of regulation in the industry”, predicting that the new legal framework will be integrated into the country’s legal system within the next 12 months.
As some major jurisdictions impose severe bans and restrictions on crypto, and Europe and the United States move slowly and carefully, the UAE is rapidly evolving into a place with clear and secure rules for crypto. digital asset industry.