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Virtual Asset Regulation Law

Dubai Enacts Its First Law Governing Virtual Assets

The UAE has made progress in recent years to strengthen its commitment to building an environment that will drive long-term economic development via digital innovation. Within the DWTCA’s free zone, the Securities and Commodities Authority (SCA) and the Dubai World Trade Centre Authority (DWTCA) have agreed to make it simpler to regulate, offer, issue, list, exchange, and trade crypto assets and associated financial operations. The agreement creates a framework for DWTCA to provide the appropriate permits and licenses for financial operations using crypto assets.

DWTCA and Binance, on the other hand, revealed intentions to construct a new global virtual asset business centre in Dubai. Consequently, the Dubai Financial Services Authority (DFSA) issued Consultation Paper No. 143 on Crypto Token RegulationDubai Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai was passed to attain this aim in a reasonable duration of time (“Dubai Virtual Assets Law” or the “DVAL”).

The Scope Of Application Of Dubai Virtual Assets In The United Arab Emirates

Except for the DIFC (A financial free zone), the Dubai Virtual Assets Law (the new legislation) will apply across Dubai. The Dubai Financial Services Authority (DFSA), the DIFC’s regulator, drafts its virtual asset market regulations.

Main Objectives Of The Virtual Assets In The UAE

The Dubai Virtual Asset Regulation Law, according to Sheikh Mohammed, intends to establish an advanced legal framework to protect investors and offer global standards for virtual asset sector governance, which will enable responsible business development in the emirate.

CRYPTO ASSETS AND REGULATORY FRAMEWORK IN UAE: AN OVERVIEW

What Exactly Is A Virtual Asset (VA)?

A virtual asset may be any digitized token of value that can be exchanged, transferred, or used to make payments. It excludes digital representations of fiat currency.

Cryptocurrencies such as Bitcoin and non-fungible tokens (NFTs) are examples of virtual assets.

Regulatory Framework On Virtual Assets In UAE – An Overview

      1. In Abu Dhabi – Regulation of Digital Securities Activities in ADGM 

In early 2019, the ADGM announced its regulatory position on this increasingly popular service, with further amendments in February 2020. The Financial Services Regulatory Authority (“FSRA”) changed the classification of Crypto Asset Exchanges to Multilateral Trading Facilities that use virtual assets, in addition to changing the language of “Crypto Asset” to “Virtual Asset.” It more accurately reflects the nature of the underlying virtual asset activities. The FSRA’s Virtual Asset framework is designed for MTFs that employ virtual assets and custodians and other virtual asset intermediaries like brokers. A license for a Regulated Activity in connection to virtual assets, for example, allows you to engage in one or more virtual asset activities, such as:

  • The acquisition, sale, or exercise of any right in virtual assets that have been approved (whether as principal or agent)
  • Managing acceptable virtual assets that belong to someone else
  • establishing agreements for another individual to acquire, sell, or provide custody of approved virtual assets (whether as principal or agent).
  • Promotion of virtual assets that have been accepted
  • providing advice on the advantages of purchasing or selling approved virtual assets, as well as any rights bestowed by such purchases or sales
  • running a Multilateral Trading Facility for virtual assets and cryptocurrencies
  • acting as a custodian of virtual assets

     2. By Dubai Financial Services Authority (DFSA)

The Dubai Financial Services Authority, which oversees the financial core of the emirate, has made its regulatory framework for crypto tokens, or cryptocurrencies, available for public comment. The Regulation of Investment Tokens has recently been added to the Dubai Financial Services Authority’s (DFSA) regulatory framework. The DFSA reiterates that it does not regulate any other sorts of cryptocurrencies, crypto assets, virtual assets, or digital assets, commonly referred to as “Crypto Assets.” The DFSA does not have any entities licensed or monitored to provide financial services related to Crypto Assets in or out of the Dubai International Financial Centre (DIFC). Crypto Assets is a broad phrase that encompasses a wide range of items. Cryptocurrencies like Bitcoin, Ether, and Litecoin are among the most popular and well-known forms of Crypto Assets. Crypto Assets are private digital assets operated using encryption and Distributed Ledger Technology (DLT) or similar technology.

     3. By Virtual Assets Regulatory Authority (VARA) in Dubai

The new law establishes a separate agency called the “Dubai Virtual Assets Regulatory Authority” (the “VARA”) to regulate and license virtual asset-related operations in Dubai. Except for the Dubai International Financial Centre, the Authority will license and manage the financial industry on the mainland and free zones (DIFC). The Authority is in charge of organizing and establishing the rules and procedures that govern Virtual Assets operations, such as management, clearing, and settlement services and categorizing and describing virtual asset kinds. VARA will offer a wide range of services in partnership with the UAE Central Bank and the Securities and Commodities Authority.

VARA’s responsibilities

VARA’s responsibilities are as follows:

  • coordinating the creation and trading of virtual assets and tokens
  • Providers of virtual asset services must be coordinated and approved.
  • Ensuring the highest standards of protection for beneficiaries’ personal data coordinating the operation of platforms and portfolios for virtual assets
  • Transactions are being monitored, and virtual asset price manipulation is avoided.

 

This article aims to give a broad overview of the topic. The information presented here may not be appropriate in all circumstances and should not be relied upon without seeking Legal professional guidance in each case.

For more information on Virtual Assets in the UAE, please don’t hesitate to contact HHS Lawyers today.

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Trademark & Intellectual Property Attorney

Shahnaz Kaushar is a senior Trademark and Intellectual Property (IP) attorney in HHS Lawyers. A seasoned lawyer based in Dubai, she has handled some of the firm’s complex, high-profile cases – many involving the protection of trademark and IP rights. Read more