By Ghulam Haider
The emirate of Dubai has adopted its first law governing virtual assets and established a regulator to oversee the sector, its ruler Sheikh Mohammed Bin Rashid said.
The UAE, the region’s financial capital, has been pushing to develop virtual asset regulation to attract new forms of business as regional economic competition heats up.
Virtual assets generally encompass products including crypto currencies and NFTs, but the announcement did not specify which assets would come under the new law.
The Dubai Virtual Asset Regulation Law aims to position Dubai and the UAE as a regional and global destination for the virtual assets sector, Sheikh Mohammed said in a statement.
The Dubai Virtual Assets Regulatory Authority will oversee the development of the business environment for virtual assets in terms of regulation, licensing and governance, he said.
The new law will apply throughout Dubai except for the state-owned financial free zone DIFC. DIFC’s regulator, the Dubai Financial Services Authority (DFSA), is working on its own regulation for the virtual asset sector.
In October, DFSA released the first part which governs digital tokens, and this week launched a consultation on regulation for crypto tokens, which includes crypto currencies.
How does it work, what will it mean for businesses?
Dubai issued the Regulation of Virtual Assets law and established the Dubai Virtual Assets Regulatory Authority in March, aiming to establish a legal framework for businesses in the virtual assets space.
Virtual assets are digital representations of value which can be traded, transferred or used as a form of payment. These include cryptocurrencies and non-fungible tokens (NFTs).
Nadim Bardawil, Partner at Dubai-based law firm BSA Ahmad Bin Hezeem and Associates LLP, clarified what the new law entails and what it will mean for businesses operating in this space.
“It lays the foundation for the creation of a new regulator in the Emirate of Dubai, the Virtual Assets Regulatory Authority or VARA for short,” Bardawil said.
“The Virtual Assets Law acts as a foundation for VARA to operate within the Emirate of Dubai and specifically within the Dubai World Trade Center. Its objective will be to regulate companies providing services linked to virtual assets within the Dubai World Trade Center as well as to promote the DWTC as a hub for companies operating within the virtual assets industry,” he added.
Since the new law was issued, VARA has not yet specified exactly how it plans to regulate virtual assets. Bardawil said that he expects the first set of regulations to be issued during the second quarter of the year.
“Dubai set its sights on prioritizing the usage of blockchain and other distributed ledger technologies more than six years ago; a good precursor for the eventual creation of VARA.”
Why is regulation so important?
Over the past few years, traditional finance and the virtual asset economy have become increasingly intertwined, making it more important than ever to regulate virtual assets.
“A large majority of virtual assets rely on decentralized structures which means that they are not created to have a centralized regulator,” Bardawil explained.
This enables market users to buy and sell virtual assets without any oversight of a central bank or financial regulator.
“As more and more institutional investors begin to invest in virtual assets, the market is looking for certain elements of financial regulation to be applied to virtual assets which should allow for more entrants as well as reduce the risks of financial crimes being committed.”
There has been a rise in crypto crime recently. In a previous interview, crypto research firm Chainalysis said that such crime increased the most throughout 2021, with an 82 percent rise in scamming revenues amounting to $7.8 billion worth of cryptocurrency.
In addition to this, NFT fraud, wash trading and money laundering have surged exponentially in the virtual assets space recently. Chainalysis found that NFT scammers alone made more than $8.8 million in illicit profits.
What does the new law mean for UAE companies?
With these issues in mind, the need for regulation is more important than ever.
Dubai has quickly become one of the most major crypto hubs in the world and Bardawil expects that Dubai’s new law will attract more start-ups operating in this space.
“We anticipate that more start-ups targeting the virtual asset space will begin to choose Dubai as either a launchpad for their operations or as a key market,” he said.
“The UAE as a whole has already put itself squarely in the list of jurisdictions that is willing to regulate nascent technologies such as those utilized in the creation and buying and selling of virtual assets and this development continues to bolster this strategy.”
“We anticipate Dubai continuing to grow its volume of crypto related businesses as well as businesses targeting everything Web3.0 based.”
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