A recent rise of digital economy incentivised many countries to join the race of making their jurisdictions attractive for entrepreneurs and businesses operating in this field. A notable example is the United Arab Emirates, where the Emirate of Dubai recently adopted a new law to promote the Emirate as a regional and international hub for virtual assets and related activities.
At MG Law we embrace any development of a clear and permissive regulatory framework in relation to crypto businesses around the world. We have successfully assisted our local and international clients engaged in various crypto- and DeFi-related activities in ensuring compliance with applicable regulations, drafting a proposal for adopting a favourable regulatory regime for digital asset industry in Georgia, as well as numerous one-off digital asset-related transactions. Our legal team has prepared the below overview of the recent developments in virtual assets regulations in the UAE with primary focus on regulations recently adopted in Dubai.
The Law No. (4) of 2022 Regulating Virtual Assets in the Emirate of Dubai (the “Law”) entered into force on 11 March 2022 and applies only to the Emirate of Dubai, across its all zones except the Dubai International Financial Centre.
The Law defines virtual assets quite broadly, as “digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes.” This includes cryptocurrencies, tokens, non-fungible tokens and anything which may be classified as virtual assets by the Virtual Assets Regulatory Authority (the “VARA”) – a newly established entity affiliated with the Dubai World Trade Centre Authority.
According to the Law, entities which provide virtual assets-related services are only allowed to operate in Dubai if they obtain the necessary license from the VARA.
The VARA has financial and administrative autonomy, and a full legal capacity to regulate all matters with regards to virtual assets. The VARA is responsible for establishing licensing rules, subsequently supervising and controlling the activities of the licensees, as well as imposing sanctions upon breaching entities. The Law sets out that only those companies are allowed to conduct virtual asset-related activities which set up their business in Dubai in one of the approved legal forms. Currently, no information is published on the specific licensing process and detailed requirements for obtaining a license from the VARA, despite the latter already issuing permits in certain cases.
The VARA also has extensive powers to shape and expand the list of activities which are subject to authorization and control, by defining “virtual assets” and activities subject to its oversight, defining, therefore, the scope of the Law.
However, despite these powers, the VARA seems to have a lenient stance towards crypto-related businesses and it has granted approvals to many entities operating in this field. Most notably, Binance, the world’s largest crypto exchange in terms of daily trading volume, recently received a fully governed license to conduct its businesses from Dubai. Binance has faced numerous compliance challenges Anti Money Laundering, Know-Your-Customer and other regulations in several jurisdictions, such as the United Kingdom, Italy and the United States, among others. In the latter, Binance was banned and had to establish a separate company, Binance.US, tailored specifically to the US laws. Nevertheless, it gained authorisation from the VARA to conduct its activities from Dubai.
As a result of the move towards clear and crypto-friendly regulations, biggest and/or fastest growing cryptocurrency platforms have announced their plans to transfer their operations to Dubai. Other Emirates of the UAE are also moving in this direction and Binance, FTX, Bybit and others have all received full or in-principle approvals to operate in both Abu Dhabi and Dubai.
Overall, digital economy contributes about 4.3% of the GDP of the UAE. Total venture capital investments of more than $30bn have been attracted by crypto and blockchain start-ups in the UAE, $10.5bn of which were invested in the final quarter of 2021 alone. Taking this into account, the UAE is expected to offer even clearer regulatory framework in this regard to increase foreign direct investments and become one of the global centres for crypto-related businesses.