UAE law

The laws apply to market participants within the emirate of Dubai, with the exception of those under the Dubai International Financial Centre.

The Virtual Asset Regulatory Authority (VARA), the regulator in charge of overseeing cryptocurrency laws within Dubai, has issued new guidelines for virtual asset service providers (VASP) operating within the emirate. 

According to information sent by Irina Heaver, a crypto and blockchain lawyer based in the United Arab Emirates, VARA has issued the “Full Market Product Regulations” which include four compulsory rulebooks and activity-specific rulebooks that lays down the rules for operating VASPs. The rules apply to market participants within Dubai only, with the exception of those operating under the Dubai International Financial Centre (DIFC), a free zone with its own regulator.

⚠️Dubai News

Dubai's Vurtual Assets and Regulatory Authority issued the long-awaited Full Market Regulations for Vurtual Assets Services Providers (VASPs).

— Irina ₿. Heaver (@IrinaHeaver) February 7, 2023

In addition to the rulebooks, the Dubai regulator also highlighted that all market participants, whether they are licensed by VARA or not, must adhere to regulations for marketing, advertising and promotions. Violators will be fined between $5,500 (20,000 UAE dirhams) to $55,000 (200,000 dirhams), and repeat offenders could get a fine of as much as $135,000 (500,000 dirhams).

In addition to these, the regulations also give guidance on other matters, such as the issuance of virtual assets. According to Heaver, there are several takeaways from the new VARA update. This includes the issuance of privacy coins being prohibited in Dubai and traders with trading capital above $250 million being required to register with VARA.

The regulation also sets fees for advisory services, licensing, and annual supervision for custody, exchanges, broker-dealers and lending services. The fees can go from $11,000 (40,000 dirhams) to $55,000 (200,000 dirhams), depending on the services.

Related: Lawyer explains new federal virtual asset law in the United Arab Emirates

Commenting on the new development, Heaver told Cointelegraph that VARA providing clarity for the crypto space is a good thing. She explained that:

“Regulatory certainty is very good for business, it is good for consumers, investors and for the Emirate of Dubai. The regulations are long-awaited and mostly welcomed.”

Heaver also added that although VARA has a wide authority to interpret the regulations and apply them in the way they see fit, she believes and trusts that such interpretation and application will be done in line with “the spirit of Dubai’s leadership,” which considers the business acumen and entrepreneurship fostering in mind.

Failure to comply with the new law could lead to a hefty fine of up to $2.7 million, ejection of profits and criminal investigation.

The United Arab Emirates (UAE) Cabinet has decided to pass a new law that governs virtual assets, setting up the country's initial regulatory regime for the cryptocurrency space at the federal level. 

Before the federal-level regulation, the UAE already introduced several supervisory initiatives for digital assets in financial free zones like the Abu Dhabi Global Market (ADGM). Last year, Dubai also established its own crypto regulator called the Virtual Asset Regulatory Authority.

Irina Heaver, a UAE-based crypto and blockchain lawyer, explained that the move has several implications in the space. According to Heaver, the new law makes sure that entities that engage in crypto activities must secure a license and approval from the new regulator. Non-compliance could lead to a hefty fine. She explained:

“Failure to comply leads to heavy sanctions, such as a fine of up to 10 million AED ($2.7 million), disgorgement of profits and even criminal investigation by the public prosecutor.” 

Heaver highlighted that the law is expected to come into force on Jan. 14, and would require crypto entrepreneurs operating in the country to conform. “Every crypto and Web3 project operating in the UAE will have to structure a way to comply with the new federal law and all of the existing laws,” she explained. 

Meanwhile, despite the minimum requirements for VASPs being attainable, the lawyer thinks that many firms may have some difficulties. “Those are actually rather realistic. However, the practice shows that most crypto companies fall short of even basic requirements,” said Heaver.

Related: How does the FTX collapse affect Dubai’s crypto ecosystem?

The crypto lawyer also highlighted that the law has also set up minimum requirements for virtual asset service providers (VASPs). According to Heaver, all VASPs are required to comply with the legislation in force on combating money laundering crimes, the financing of terrorism and the financing of unlawful organizations. In addition, all legal entities that fall into the VASP category will have three months to adapt and comply with the new law. 

Despite the establishment of a new law dedicated to protecting consumers, Heaver believes that it would be difficult to prevent FTX-like entities from attempting to commit fraud. Despite its efforts, Dubai's VARA still previously gave FTX approvals before revoking it in November. She noted: 

“From the evidence that emerged, FTX is a case of serious fraud of a level that will look Madoff look like an angel. Unfortunately, no levels of laws can protect us from people wanting to commit crimes intentionally."

Overall, the lawyer believes that this new development is good for founders, investors and consumers within the UAE and that regulatory clarity gives the country the right ingredients to be the “Web3 capital of the world.” 

Legal expert Kokila Alagh shared insights regarding crypto and blockchain regulations in the United Arab Emirates.

While many countries are inclined to simply ban the use of Bitcoin (BTC) and virtual assets, regulators in the United Arab Emirates are taking a different approach. 

The country has been consistently enacting its vision of becoming a blockchain capital by providing frameworks to guide crypto businesses on how to operate in accordance with the laws.

Jurisdictions in the country are divided between the mainland, where the regulator is the Securities and Commodities Authority (SCA), and free zones i.e. geographically-specified areas within the UAE with relaxed taxation and regulatory regimes. 

Such free zones include the Dubai International Financial Centre (DIFC), which is regulated by the Dubai Financial Services Authority (DFSA), Abu Dhabi Global Markets (ADGM) which is regulated by the Financial Services Regulatory Authority (FSRA), and the Dubai Multi Commodities Centre (DMCC) which falls under regulatory remit of the SCA.

In an interview with Cointelegraph, Kokila Alagh, the founder and CEO of Karm Legal Consultants, shared a brief overview of the regulatory situation in the country. According to Alagh, the SCA, the mainland regulator, provides certainty and opportunities for crypto and blockchain businesses:

“The regulations provided certainty and have opened new opportunities in the UAE, which makes SCA a progressive regulator in the global landscape, as they haven’t ignored this vital growing sector and are continuously working on developing the frameworks to adjust as per these emerging sectors like DLT, blockchain.” 

The FSRA, ADGM’s financial services regulator, was the first to introduce digital asset regulations in the country back in 2018. Alagh said that ADGM was also one of the first regulators globally to introduce digital securities regulations and guidance on virtual assets, adding that ADGM is “one of the topmost jurisdictions for established blockchain companies.” 

Alagh also discussed regulations in the DIFC. According to Alagh, the DFSA, DIFC’s regulator, “is one of the first regulators from a major financial free zone to bring regulations in regard to security tokens.” 

Current DFSA regulations cover the tokenization of securities through blockchain and distributed ledger technology, including the tokenization of shares, derivatives, bonds, debentures, certificates or units of a fund. However, consultation papers for stablecoins, fungible cryptos and nonfungible tokens are still in the process of being drafted.

Related: Dubai World Trade Centre to create new crypto hub and become regulator

Lastly, Alagh noted DMCC. The free zone issued special licenses such as the DLT technology service provider license and proprietary trading in crypto commodities license. It also has a crypto-dedicated center called Crypto Oasis, where more than 130 blockchain companies have registered. 

Alagh said that “the DMCC is one of the most advanced regulators in this space and has spearheaded the development of the crypto ecosystem in the UAE. The DMCC is a crypto-friendly regulator and provides companies with a friendly framework for setting up a business.” 

Meanwhile, crypto exchange Binance has set out to collaborate with the UAE government to assist crypto exchanges and businesses to get their licenses in Dubai. The firm signed a memorandum of understanding with the Dubai World Trade Centre Authority as they launched a crypto hub.