Breaking news: Dubai releases new guidelines for crypto regulation related to virtual asset service providers. The laws apply to market participants within the Emirate of Dubai, with the exception of those in the Dubai International Financial Centre.
In addition, the Virtual Assets Regulatory Authority‘s new set of regulations sets out requirements for crypto companies covering everything from issuance and exchange services to advertising.
New crypto regulation in Dubai: all the details
The Virtual Assets Regulatory Authority (VARA), the regulatory authority in charge of overseeing cryptocurrency laws within Dubai, has issued new guidelines for virtual asset service providers (VASPs) operating within the emirate.
According to Irina Heaver, a cryptocurrency and blockchain lawyer based in the United Arab Emirates, the VARA has issued its “Comprehensive Market Product Regulation,” which includes four mandatory regulations and activity-specific regulations that set out the rules for the operation of VASPs.
The Dubai regulator also stressed that all market participants, regardless of whether they are licensed by VARA or not, must comply with regulations for marketing, advertising and promotions.
Violators will be fined between 20,000 dirhams ($5,500) and 200,000 dirhams ($55,000), and repeat offenders could see fines of up to 500,000 dirhams ($135,000). The regulations also provide guidance on other issues, such as the issuance of virtual goods.
According to Heaver, there are several hints from the new VARA update, including that the issuance of privacy coins is prohibited in Dubai and that traders with trading capital over $250 million must register with the VARA.
The regulations also set fees for advisory services, licensing and annual supervision for custody, exchanges, broker-dealers and lending services. The fees range from 40,000 dirhams ($11,000) to 200,000 dirhams ($55,000), depending on the services.
Comments on new crypto regulation in Dubai: experts speak
Commenting on the new development, Heaver said it is positive that VARA has provided clarity for the crypto space, explaining:
“Regulatory certainty is very good for businesses. It is good for consumers, investors and the Emirate of Dubai. The regulations are long overdue and mostly welcomed.”
Heaver also added that although VARA has broad authority to interpret the regulations and apply them as it sees fit, he believes and trusts that such interpretation and application will be done in line with “the spirit of Dubai’s leadership,” which considers business acumen and promoting entrepreneurship.
Thus, the extensive rules published Tuesday describe in detail the requirements for businesses, from cybersecurity regulations to compliance and risk management standards. A separate set of regulations governs specific activities such as issuing, consulting, custody and exchange services.
All activities and companies fall under the supervision of the Virtual Assets Regulatory Authority (VARA), established last year to oversee the sector as Dubai aims to attract cryptocurrency and blockchain companies.
Since then, VARA has issued some guidelines for cryptocurrency advertising, with plans to publish full regulations by the end of 2022.
In this regard, he stated:
“With bespoke rules and guidelines designed to provide clarity, ensure certainty and mitigate market risks, VARA seeks to develop a model framework for global economic sustainability within an innovation-focused environment that is truly borderless, independent technology-driven and future-oriented.”
Dubai is the most populous emirate of the seven that make up the United Arab Emirates (UAE) and has high ambitions to become a regional fintech hub.
Although a number of cryptocurrency companies, including FTX‘s now-collapsed European unit, claimed to have obtained VARA approval, a UAE regulator told a panel at the World Economic Forum 2023 in January that no companies have licenses from the “watchdog.”
Indeed, regulators around the world are racing to institute oversight of cryptocurrencies after last year’s market crash led to the implosion of many of the high-profile digital asset lending and exchange platforms.
The European Union is poised to approve its own licensing regime, while the UK, South Korea and other jurisdictions are rapidly forming their own frameworks
Dubai’s new framework, which also covers advertising and promotion requirements for crypto companies, still needs final approval before being implemented.
UAE’s new law for virtual assets
The United Arab Emirates (UAE) recently passed a new law regulating virtual assets. Establishing the country’s initial regulatory regime for the cryptocurrency space at the federal level.
Prior to regulation at the federal level, the UAE had already introduced several oversight initiatives for digital assets in economic free zones such as the Abu Dhabi Global Market (ADGM).
To the extent that, last year, as anticipated, Dubai also established its own cryptocurrency regulator called the Virtual Asset Regulatory Authority (VARA). On this, Irina Heaver explained that the move has several implications.
According to Heaver, the new law ensures that entities that engage in cryptocurrency activities must obtain a license and approval from the new regulator. Failure to comply could result in a hefty fine.
As she explained, non-compliance carries heavy penalties, such as a fine of up to 10 million AED ($2.7 million). The return of profits, and even criminal investigations by the prosecutor.
Marwan Alzarouni, CEO of the Dubai Blockchain Center, also explained that the new legislation will include a comprehensive list of technical requirements. Including cybersecurity controls and custodial measures to ensure the safekeeping of virtual assets, such as the use of cold wallets. To prevent potential misuse of client funds by custodians, additional measures include financial credit guarantee requirements.