- April 17, 2022
- Posted by: DBS
- Category: Dubai Business Services
In recent years, the government and authorities of United Arab Erimates were planning to improve the state’s economy. They have taken a step toward growth and have become an international digital asset hub.
The vice president of Dubai, Sheikh M. Bin Rashid Al Maktoum, approved the Regulation of Virtual Assets Law in Dubai on 22nd February 2022. It is an exciting legislative development for making Dubai a legislative state for governing virtual assets throughout the state.
Moreover, this Dubai Virtual Asset Regulation Law has established Dubai as a secure hub of virtual assets and promotes virtual assets worldwide. Undoubtedly, it will improve the future landscape in the virtual world.
Table of Contents
Virtual Asset Law Scope
As explained by the authorities, Virtual Law only lays the foundation for dealing with digital assets. They define the term Virtual Asset as:
“A virtual representation of value that can be transferred, traded, or used as a payment or exchange tool or for various investment reasons, including Digital tokens, or any other similar asset identified in this aspect.”
Key Features of Dubai Virtual Asset Regulation Law
All the main points of the law regarding the key features and basic implementations of the law are briefly described as follows:
1. Creation Of A New Regulatory Authority
The Dubai government entitles the Virtual Assets Regulatory Authority (VARA) as Dubai’s International Trading Authority. It is the primary virtual assets regulator, and its mission is to promote Dubai’s position as an international and regional destination in the virtual asset world. It will help improve the state’s digital economy and encourage more investors.
Furthermore, the VARA attracts the leading virtual asset operating companies to establish their powerful assets in Dubai. These companies also provide the rules and regulations necessary to control the regulation of virtual assets.
2. Approval by Force
The Virtual Asset Law entered force on 11th March 2022, the official publication date of Gazette. However, any other laws or legislations associated with or conflicted with the Asset law are repealed. Perhaps, further detailing and clarification with the Virtual Asset Law is still required.
Subsequently, the Dubai World Trade Authority (DWTC Authority) is instructed to issue the legal decisions implemented with the Virtual Regulation Law. Though, the exact time of issuing the details is not finalized yet.
3. Expansive Scope
The Virtual Regulation Asset Law is a wide term for defining the digital trading, transferring, exchanging, or investing of assets. Furthermore, it also includes the dealing of tokens, cryptocurrency, non-fungible tokens, and any other digital assets recognized by VARA.
4. Recognizing Requirements
To get authorized by the Virtual Assets Law, the applicant must declare Dubai as the headquarter of their business. Additionally, a candidate must also have a commercial business license from the associated business authority of Dubai.
Consequently, it is also applicable for the candidate by the Dubai authority to show them relevant documents associated with anti-money laundering, transparency, disclosure, and know-your-client (KYC) before applying for the Virtual Asset Law.
Under the influence of Virtual Asset Law, VARA is allowed to take various measures and actions for the applicants going against the law. It includes suspending the activities and assets of any service provider and canceling the law insurance of the provider under defined circumstances.
The authorities of DWTC have announced to constitute with the penalties declared due to the violation of the Asset Law. Moreover, the VARA also owns the power to suspend the license for six months or even more than that. Additionally, they can also cancel the license forever. It is to be mentioned that the repercussions of violations of rules and regulations of the Virtual Asset Law are significant and wide-ranged.
6. Implementation After Authorization
While the Virtual Law is applicable throughout Dubai and several developmental and free zones, the law doesn’t regulate on the federal level. Organizations and companies operating in Dubai are prohibited from engaging in any such activity of Virtual Asset Law unless they apply for authorization from VARA.
Therefore, any activity associated with the Asset Law can only be conducted after the authorization from VARA, and that too within the defined limitations and rules. It includes managing and operating an asset platform and its custodial management.
Subsequently, the VARA holds the authority to change or expand the rules and regulations of the list of activities associated with the applicants. It might subject any change to the details.
7. Responsibilities of Regulation Authority
Under the application of Virtual Asset Law, the VARA owns a broad mandate for regulating and managing the service providers, asset platforms, and all other platforms associated with exchanging virtual assets and currencies between the platforms.
Furthermore, VARA is bound to control and organize the issuance and offering of virtual assets and prevent and take notice of any illegal activity happening. Additionally, VARA also rules to take precautionary measures to control transparency for investors and buyers. In short, all the authorized applicants of VARA are bound to fully cooperate with VARA to help them properly manage and achieve the goals.
8. Collaboration With Other Authorities
VARA is bound to cooperate and collaborate with other legal authorities of Dubai to govern and implement the new Laws correctly. It is connected with the Central Bank of UAE to ensure the stability and protection of the economical system.
It helps increase the virtual assets bank transactions collectively and regulate the decentralized finance applications and digital asset lending.
In a Nutshell
The Virtual Asset Law is fortunate for the UAE as it is the third-largest crypto market in the Middle East. It has an approximately $26 billion transaction volume trailing Lebanon and Turkey.
Additionally, UAE provides security and protection to the investors, as it has been cooperative for the virtual asset candidate to regulate the assets conveniently. UAE has created opportunities for virtual asset holders to regulate their assets.
In February 2022, it was declared that the Federal Securities and Commodities Authority is revising its rules and regulations to welcome more virtual asset service providers in UAE.
Moreover, Abu Dhabi’s renowned financial services, a free financial zone for UAE, has issued a crypto license to several companies in UAE. By November 2021, three main companies of UAE’s license were under approval, while many others were planned to be issued a license soon.
Risk in Trading Virtual Assets
Trading virtual assets can be risky and scammy because it is a relatively new field. Many countries face high money laundering issues, terror, and other crime financings using virtual assets.
Due to increased risks associated with Virtual Asset dealings, many virtual asset holders and dealers are declined from accessing the banks and are regarded as a ‘risky business.
In 2017, a ‘Wannacry’ ransomware hostage thousands of computer software unless the hostages paid a ransom in Virtual Asset which was approximately USD 8 billion. It has highly damaged many hospitals, banks, and businesses worldwide.
Virtual Assets and UAE
UAE has set itself as a hub by associating with a Dubai Virtual Asset Regulation Law. The law follows the publication of consultation no. 4 of the Dubai Financial Services Authority related to cryptocurrency regulation.
The implementation of new laws and jurisdictions has indicated that UAE wants to embrace the change and accept the implementation of new trends and technologies to position itself as a global leader in digital assets and blockchain space.
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