The UAE Regulates Its Cryptocurrency Market From August 31st 2023

The UAE has introduced a new, compulsory regulatory market for the use of cryptocurrencies beginning August 31^st, 2023. All must now operate as licensed – and fully regulated – entities by the emirate’s virtual assets regulator. In Abu Dhabi, the regulator is the Abu Dhabi Global Market (ADGM) who oversees the virtual asset space in Abu Dhabi. In Dubai, positioned more towards the ecommerce sector, the regulator is the Virtual Asset Regulatory Authority (VARA) who are responsible for regulating and supervising virtual assets and virtual asset-related activities in all free zones in Dubai, except at DIFC.

In Dubai, this transition means businesses engaged in crypto-assets need to show they have the credentials to conduct these operations. If things go wrong, their clients are in a relatively good position to be duly compensated. What Dubai is trying to avoid is the kind of blowouts crypto firms have had in markets where laws were inadequate or are still being framed.

From August 31, entities that qualify for the ‘Full Market Product’ license can commence their transition to the VARA regime.

Receiving or making payment in crypto in Dubai

In real terms, wherever cryptocurrencies are being used – say, buying or selling Bitcoins or used to pay off on a property investment or even a hotel bill – will require the businesses involved to have all the licenses in place to do so.

All businesses – from hotels to car rentals and everyone else – accepting or transacting in virtual assets for its business purpose, must be registered with VARA and abide by the licensing criteria.

First, these businesses had to first clear another regulatory deadline – respond to an ‘Initial Disclosure Questionnaire’ issued by VARA by April 30.

Failure to do so had consequences, and has held market entry up in at least one example. BitOasis (a crypto trading platform) failed to submit certain documents in the time allotted. This resulted in suspension of BitOasis’s operational license. It also means that VARA are serious when it comes to compliance measures.

UAE Regulatory Framework

The UAE has been quick with creating a regulatory framework for cryptocurrencies such as Bitcoin. The authorities see a definite – and defined – space for virtual assets in the wider financial services landscape. In contrast, some of the biggest global jurisdictions are still way off from having any regulations related to crypto.

The goal is to establish the UAE as one of the world’s focal points for crypto-facing businesses.

Applying for VARA Approval

The Approval Applications procedure involves the following steps:

• Submission of the Initial Disclosure Questionnaire.
• Additional documents, including business plan, Ultimate Beneficial Owner details, plus senior management details.

After initial approval, applicant firms must complete an operational setup, including renting office space, employee boarding, and other required operational aspects.

Once Initial approval was received, the business can apply for a VASP license. This process involves submitting meetings, interviews, and other necessary documents to substantiate the applicant’s business aspect claim.

Four primary rulebooks have been prescribed to comply with VASP license requirements – covering the main company level, compliance and risk management, IT and market conduct levels. The final VASP license is issued subject to payment of the remaining and first year supervision fees.

Businesses considering an entry into this market need to consider the nature of their business operations and comply with the respective rulebook requirements. Currently, there are seven categories: Advisory Services, Broker Dealer Services, Custody Services, Exchange Services, Lending and Borrowing, Virtual Asset Management and Investment Services and VA Transfer and Settlement.

Companies needing evaluation and a compliance path to VARA approvals may contact Dezan Shira & Associates Dubai office at dubai@dezshira.com

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