On 28 February 2022, Dubai enacted Law No.4 of 2022, known as the virtual assets law (VAL), a new piece of legislation intended to regulate cryptocurrencies and all transactions of other virtual assets within the Emirate. It came alongside the establishment of the Dubai Virtual Assets Regulatory Authority (VARA) and provides a legal framework with which to protect investors and businesses trading in virtual assets in Dubai.
The new law sets out international standards for the governance of the virtual asset industry and reflects Dubai’s ambition to be a leading jurisdiction in the virtual asset space.
The emergence of distributed ledger technology and growth of digital technology necessitates strong legislation for the protection of consumers and investors and to avoid the risk of scams and fraudulent activity. This much needed legislation will ensure responsible business practices and ensure high standards of personal data protection.
What constitutes a virtual asset?
A virtual asset is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. The most well-known examples are cryptocurrencies such as Bitcoin, Ethereum or Dogecoin. Gaming tokens, non-fungible tokens (NFTs) and governance tokens may also be considered as virtual assets, depending on the context in which the assets are used.
Scope of the new law
The virtual asset law’s mandate covers the provision of all services relating to virtual assets in Dubai. It covers all free zones and special development areas within Dubai with the exception of the Dubai International Financial Centre (DIFC) which is governed by its own regulatory framework, set out by the Dubai Financial Services Authority (DFSA).
Which activities are regulated by the new law?
Activities which are subject to the VAL and will be governed by VARA are:
Virtual asset platform operation and management services
Settlement and custody procedures services
Virtual asset and currency exchange (both domestic and foreign), and exchange between different forms of virtual assets
Virtual assets transfer services
Virtual asset custody, settlement, management, or control services
Services related to virtual asset wallets
Trading and offer of virtual tokens
Further activities may be added to the list by VARA in the future
Licensing and other requirments
In order to obtain a license to practice activities related to the trading of virtual assets, the new Law stipulates that all businesses must establish Dubai as their headquarters and must obtain a commercial business license from the appropriate licensing authority in Dubai. The specific licensing process and additional ongoing requirements with regards to anti-money laundering, disclosure, transparency and know-your-client (“KYC”) procedures are expected to be set out in the regulations and decisions supplementing the Virtual Assets Law.
VARA is an independent regulatory body within the Dubai World Trade Centre (DWTC). It will work closely with the DWTC authority and alongside the UAE Central Bank to create a safe environment for the virtual assets ecosystem in Dubai to grow, whilst ensuring the protection and stability of the financial system.
Its role will be to promote the Emirate as a regional and international hub for virtual assets and related services. It will achieve this by raising awareness of investment opportunities in the virtual assets and products sector and by developing the necessary regulations to protect virtual asset investors and curb illegal practices.
How will the virtual assets law impact the Dubai economy?
This new legislation is a clear sign that Dubai’s government views virtual assets as being a key component of the future digital economy and is an important step towards creating a large-scale management system to regulate cryptocurrencies and other decentralised assets.
The implementation of this new law establishes much needed standards for the governance of the virtual asset industry. It comes at a time when there have been numerous other recent developments in the regulation of virtual assets in the UAE.
In February this year, the federal Securities and Commodities Authority (SCA) was reported to have updated legislation to allow virtual asset service providers to establish themselves in the UAE. Additionally, ADGM’s Financial Services Regulatory Authority (FSRA) has recently issued crypto exchange licences to several companies and the UAE’s largest free zone, DMCC has also set up its own regulations for crypto companies operating from it.
These developments reflect the growing interest and development of the virtual assets industry in the UAE and increased legislation will help to increase trust in blockchain technology to ensure that virtual asset transactions and the cryptosphere is a safe and secure means to transfer value.
How can PRO Partner Group help?
PRO Partner Group have an experienced team with unrivalled knowledge of business practices and legislative requirements in the UAE. We can advise you on the implications the Virtual Assets law to your business and/or how you can set up a business in the virtual asset space while remaining fully compliant with all current legislation.
If you need guidance on this or any other related company setup, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or Saudi Arabia then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at email@example.com or complete the contact form below and we will be delighted to assist you.