Virtual assets will now be regulated in the Emirate of Dubai under the Dubai
Law No. 4 of 2022 on the Regulation of Virtual Assets (the “Dubai Virtual
Asset Law” or “DVAL”) and by the Dubai Virtual Assets Regulatory Authority
(“VARA”).
Background
As per the DVAL, a virtual asset is defined as a “digital representation of value which can be
digitally traded or transferred or used as an exchange or payment tool or for investment purposes.”
Virtual tokens on the other hand are digital representations of “a group of rights which can be
issued and traded digitally through a virtual asset platform.” With the new DVAL, such virtual
assets and tokens, including the platforms that provide the same, shall be subject to the DVAL
and monitored by VARA.
Effective upon its publication on the Official Gazette, the DVAL shall govern all virtual assetrelated activities in the emirate of Dubai including free zones, excluding the Dubai International
Financial Centre (“DIFC”). It should be noted that since the DVAL is a Dubai law, it will not regulate
virtual assets on a federal level.
The Dubai Virtual Asset Law
The Dubai Virtual Asset Law shall govern all virtual asset-related activities in Dubai. As per Article
16 of the DVAL, the following are virtual asset-related activities that will be subject to the licensing
and regulation by VARA:
- Services relating to the offering and trading of virtual assets;
- Services relating to the virtual assets’ portfolio;
- Custody and management of virtual assets;
- Transfer of virtual assets;
- Exchange services between virtual assets and other currencies (both local and foreign);
- Exchange services between one or more forms of virtual assets; and
- Exchange services between one or more forms of virtual assets; and
Any person wishing to practice any of the above listed activities shall require authorisation from
VARA and in order to do so a company must be operating in Dubai and must have a commercial
license.
Any breach of the DVAL, including practicing the above listed activities with no authorisation from
VARA, can incur penalties and fines and potentially:
- Withdrawal of VARA authorisation;
- Cancellation of permits; or
- Cancellation of commercial license.
All licensed VARA service providers shall be subject to strict monitoring in all stages and shall be
compliant with regulations concerning anti-money laundering (“AML”) and combatting the
financing of terrorism.
VARA
The Dubai Virtual Assets Regulatory Authority was established by the DVAL and shall be
responsible for monitoring and regulating all virtual asset-related activities in Dubai. Linked with
the Dubai World Trade Centre (“DWTC”), VARA shall have its own legal personality and financial
autonomy. Its responsibilities shall include:
- Handling the application of the DVAL;
- Operating the licensing for companies wishing to practice virtual asset-related activities;
- Regulation of all virtual asset-related activities including the sale of virtual assets and
tokens; - Providing AML support;
- Ensuring data protection of beneficiaries; and
- Coordinating with the Central Bank of the UAE and the Securities and Commodities
Authority (“SCA”).
Following its establishment, VARA shall issue implementing decisions which shall detail the
implementation of the DVAL, the activity descriptions for each virtual asset-related activity, a list
of excluded virtual assets and the licensing procedures and the associated fees and charges.
Binance
Recently, VARA has issued the first ever Virtual Asset License to Binance, a well-known
blockchain and cryptocurrency infrastructure provider. With being the first company to be issued
the license, Binance shall be allowed to offer to pre-qualified investors and professional service
providers limited exchange products and services under strict monitoring by VARA as part of its
initial regulatory phase.
Conclusion
In addition to the enactment of the DVAL and the establishment of VARA, other regulatory
authorities, such as the Dubai Financial Services Authority (“DFSA”) and the SCA are taking steps
towards regulating cryptocurrencies. The DFSA recently issued a consultation paper for the
regulation of crypto tokens whereas the SCA has previously stated that it is also working on its
own regulatory framework for cryptocurrencies.
With Dubai as a leading financial hub across the regions of Middle East, Africa and South Asia
and the increasing popularity of virtual assets like cryptocurrencies and Non-Fungible Tokens
(NFTs), there is huge potential for the virtual asset industry in the UAE.
Disclaimer
This article is for informational purposes only and shall not be considered as legal advice or
opinion