On 28 February 2022, the Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, issued Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai (Virtual Asset Law). The objective of this law is to establish the position of Dubai and the United Arab Emirates (UAE) as a key global player in designing the future of virtual assets.
Here are five things to know about the Virtual Asset Law:
The Virtual Asset Law applies to the provision of services relating to virtual assets in Dubai, including all special development zones and free zones in Dubai. However, the law will not apply to the Dubai International Financial Centre (DIFC) which is an independent jurisdiction with its own financial regulator.
‘Virtual asset’ is, in turn, defined as a digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes including virtual tokens. This should include a wide range of assets including security tokens, non-fungible tokens (NFTs), and cryptocurrencies.
Establishment of the Dubai Virtual Assets Regulatory Authority
The Virtual Asset Law has established the Dubai Virtual Assets Regulatory Authority (VARA), an independent public entity that is affiliated with the Dubai World Trade Centre Authority (DWTCA).
The VARA will be responsible for providing full range of services in relation to virtual assets in coordination with the UAE Central Bank and Securities and Commodities Authority including, the licensing and regulation of entities carrying out activities in the virtual asset space, development of strategic plans and policies surrounding virtual asset activities, regulating and supervising the issue and offering of virtual assets and tokens, prescribing regulations in relation to personal data protection and KYC/AML.
Activities subject to regulation
The following activities are regulated under the new Virtual Asset Law and will require a permit from VARA:
- virtual asset platform operation and management services;
- settlement and custody procedures services;
- exchange between virtual assets and currencies (both domestic and foreign), and tween one or more forms of virtual assets;
- virtual assets transfer services;
- virtual asset custody, settlement, management, or control services;
- services related to virtual asset wallets;
- offering and trading in virtual tokens.
- Note that the VARA may add further activities to the above list that will require a permit to operate in Dubai.
Role of Dubai World Trade Centre Authority
The DWTC Authority is meant to become a new dedicated zone for regulated virtual asset businesses in the near future. The DWTC Authority is coordinating with VARA in launching the application process for ‘Regulated Virtual Asset Business Licenses’ shortly.
What to look out for
The regulatory framework and authority have been established. Here’s what’s next to watch out for:
- a list of virtual assets, business practices, services, and products that are prohibited in the UAE will be notified and circulated by VARA;
- rules regarding the classification and identification of the types of virtual assets and virtual tokens and the standards for dealing with them may be created by the VARA;
- KYC/AML regulations and other regulations on monitoring the activities of virtual asset service providers may be further notified by the VARA;
- a code of professional ethics for virtual asset service providers may be prescribed by the VARA;
- implementing regulations that follow the law will be published on the VARA website.
In summary, the introduction of the Virtual Asset Law is a positive step in the UAE’s vision to be the global hub for digital assets and blockchain technology. Businesses now can soon take advantage of the virtual asset regime and set up in the ever-welcoming and booming emerging digital technology market in the UAE.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.