Dubai’s first virtual asset regulation was announced on Thursday, 10 March 2022. The news has shaken the crypto market and left many wondering what effect it may have on their crypto investments and entrepreneurial projects. Although the Regulation will be released in due course, we know a few things.
The regulation represents a positive step forward
The UAE enhances its approach to cryptocurrency and maintains its position as a jurisdiction at the forefront of cryptocurrency regulation. As a result of the virtual asset regulation, Dubai is taking a step forward in creating a comprehensive legal framework to protect investors and attract virtual asset start-ups to the UAE. Those involved in the virtual asset industry in the region should view this development as a positive step forward.
The regulation is not the first law governing virtual assets
Several media outlets have described the Regulation as the “first” virtual asset regulation in the UAE. The Security and Commodities Authority (SCA) issued in 2020 Decision No.23 of 2020 concerning Crypto Assets Activities Regulation, pertaining to all individuals and entities providing financial services relating to crypto assets in the UAE. A comprehensive legal framework is already in place for the Abu Dhabi Global Market financial-free zone. As a result, the Regulation gives further clarity and strength to existing regulations in the UAE.
The regulation establishes a new independent regulatory body
In this new Regulation, the primary objective is to establish the Dubai Virtual Asset Regulatory Authority (VARA), the first independent entity to oversee virtual asset activities in Dubai. In our current understanding, VARA will also be responsible for regulating financial activities relating to virtual assets (e.g., operating and managing virtual asset platforms, exchange services between virtual assets and currencies.) We anticipate VARA working closely with other onshore financial regulators, such as the UAE Central Bank and the Securities and Commodities Authority.
The regulation is limited to Dubai, and there are more to come
The Regulation is applicable in Dubai, including non-financial free zones, such as the Dubai Multi Commodities Centre (DMCC), Dubai Internet City (DIC), and Dubai Silicon Oasis (DSO). Therefore, the new Regulation is geographically limited and will not encompass Abu Dhabi or any financial free zones, such as the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM), which have already issued or are currently working on issuing their own virtual asset regulations. We anticipate that, once the Regulation is in effect and VARA’s implementation is complete, VARA will issue a series of regulations and guidelines detailing the steps in acquiring a license, the technical security requirements imposed on Virtual Asset businesses, the anti-money laundering and KYC obligations to be met, and others.
The data implications are significant
In the UAE, which has a federal data protection law, there will be important data protection considerations to take into account when working with blockchain or other distributed ledger technology, such as establishing shared data formats, classifying data before publishing it, and protecting data privacy and confidentiality in general.