UAE Leads the Way in Crypto After FTX Scam

Dubai Law No. 4 of 2022 Regulating Virtual Assets in the Emirate of Dubai became effective on March 11, 2022. The Law lays the groundwork for a legal framework governing virtual assets in Dubai with the objectives of safeguarding investors and encouraging ethical corporate expansion. It establishes a virtual assets regulator, gives it the authority to enact pertinent rules and regulations, defines “virtual asset,” and lists services that will need a licence in order to accomplish those objectives.
The Dubai Virtual Assets Regulatory Authority (VARA), Dubai’s designated virtual assets regulator, has made two significant moves in the first six months of this Law. The marketing, advertising, and promotion of Virtual Assets are governed by administrative instructions that have first been issued by it. Second, it has granted a number of international participants in the cryptocurrency, blockchain, and digital asset markets interim approval to operate in Dubai (known as a “MVP License”).
To carry out the Law’s objectives, VARA has been founded as a separate body with complete financial and administrative autonomy. The Emirate of Dubai, including all of its free zones aside from the DIFC, is under the jurisdiction of VARA. Prior to engaging in any of the virtual asset’s activities outlined in the Law, industry players are required to establish a presence in Dubai, register with VARA, and receive a licence.
VARA has the responsibility of keeping track of transactions and preventing price manipulation of virtual assets in order to safeguard investors and dealers in Dubai. It has a wide range of authority to categorise, specify, control, broaden, and outlaw these activities. Its obligations consist of:
• Establishing a code of ethics, issuing the relevant regulations for Dubai (excluding the DIFC), and enforcing them.
• Putting in place extra controls for operations involving virtual assets, such as offering management, clearing, and settlement services.
• Evaluating, categorising, and describing the many virtual asset kinds.
• Creating a comprehensive policy and strategies for the control of services for virtual assets.
• Monitoring, issuing permits, and regulating the industry throughout Dubai’s mainland and the free-zone regions (again, excluding the DIFC).
• Supporting efforts against money laundering and educating the public on the risks involved in dealing with virtual assets.
Together with the Dubai Digital Authority, the Securities and Commodities Authority, the Central Bank of the UAE, and other federal authorities in the UAE, VARA carries out its regulatory duties. Because some of these agencies’ jurisdictions overlap, market participants in Dubai must carefully analyse all applicable laws and consult with all three regulators at the outset of every venture.
This definition is not just broad but also grants VARA the authority to decide what may be considered a virtual asset, providing the regulator some degree of control over the asset class. This underlines how crucial it is for market participants to engage proactively and early on with regulators and consultants.
The concept includes components that are present in other jurisdictions’ legislative strategies as well. For instance, “Virtual Assets” are defined under the Law as things that are “produced electronically/digitally,” “confer digital representation of value,” and “digitally sold or transferred.” Similar features are used by laws in the United States, England, Singapore, and the European Union to define what virtual or digital assets are.
VARA is authorised to broaden, categorise, and/or further define the aforementioned actions and to impose restrictions on them. Despite the fact that the Law does not apply in the DIFC, it is currently possible for business owners who want to operate there to do so from their onshore Dubai location because neither the DIFC nor its regulator, the DFSA, has imposed a presence requirement.
Since the Law does not make an exception for truly decentralised technology, it is unclear what the VARA’s presence requirement will signify for these systems. The ultimate gatekeeper into Dubai’s digital asset economy is now VARA, who also has the authority to revoke licences.
Penalties and sanctions, including the suspension or revocation of a licence to engage in virtual asset operations or the revocation of the infringing party’s commercial licence, may be imposed for violations of the Law or its future provisions.
VARA has the authority and powers of a court officer when it comes to enforcing the Law and the accompanying regulations, and it can work with the applicable municipal and federal authorities to get access to and confiscate records, documents, equipment, and properties as necessary. Virtual asset service providers and other individuals are required to collaborate with VARA and comply with its requests in accordance with the Law’s requirements and its implementing rules. The Penal Regulations outline the penalties for breaking the Marketing Regulations; fines begin at AED 20,000 and increase.
Although efforts to govern the virtual asset market are still in their infancy, Dubai is one of the countries pushing virtual asset regulation into the mainstream. According to its new Law, service providers who engage in virtual asset activities in Dubai or any of its free zones (aside from DIFC) must now I obtain a valid licence from VARA (except for DIFC); (ii) establish a presence in the Emirate; and (iii) adhere to the Law’s rules and its implementing regulations. Entities with a presence in onshore Dubai can currently conduct business in the DIFC without having a second location there.
The Law gives the Director General of the Dubai World Trade Centre Ability the authority to issue such regulations by publishing them and authorises VARA to propose regulations. Regulation is utterly necessary for the bitcoin sector. If it does not, it will eventually self-implode. Regulation has been proposed by major cryptocurrency businesses including FTX and Binance. It looks to be only a ploy to fend off government enforcement. One of the main factors in eventually abandoning the plan to purchase FTX by Binance was the company’s efforts to evade legal authorities.
Although the decentralised finance, or DeFi, movement was supposed to be sparked by the market for digital assets, the exact reverse has occurred. A few numbers of centralised exchanges came to dominate the economy, drawing disproportionate quantities of capital and serving as the epicentres of catastrophe. The centre will not hold, to paraphrase author Joan Didion. Consequently, the market for digital assets needs to be subject to the strictest regulations.