On February 28, 2022, the UAE government enacted the Virtual Assets Law. This act marks a substantial shift in Dubai's legal framework. With the exception of the Dubai International Financial Center, this law applies to virtual services provided by companies operating in Dubai and other specific development and free zones.
The Virtual Assets Law also seeks to strengthen Dubai's position as a prominent player in the virtual assets market while fostering a favorable environment. Additionally, this Law is a crucial step in establishing the UAE as a global hub for blockchain - based digital assets. Let's go through the key features of this rule and how they could impact virtual assets and related problems in the United Arab Emirates.
Essential Elements of the Law on Virtual Assets
Formation of a new regulatory body: Virtual Trade Assets Regulatory Authority (VARA).
The creation of the Virtual Trade Assets Regulatory Authority (VARA was made possible by the enactment of the virtual assets law). The Dubai World Trade Center Authority and the new regulatory authority work together to regulate virtual assets in Dubai.
Dubai may aim to boost the digital economy while developing into a regional and global center for virtual assets with the passing of the Virtual Assets Law and the establishment of the Regulatory Authority.
Along with encouraging pertinent businesses to establish headquarters in Dubai, the Regulatory Authority also seeks to raise public understanding of cryptocurrencies and blockchain technology. These goals complement the ones previously mentioned. These initiatives will eventually provide the structure required to monitor, regulate, and control problems relating to virtual assets.
Virtual Assets Law implementation
Any sections of current laws that conflict with the VAL when it takes effect on March 11, 2022, will be immediately repealed. VAL is an essential step toward creating a strong legal framework for virtual assets, but it still requires improvement.
The Director-General must make decisions involving the Virtual Assets Law of DWTC Authority. The precise time frame for putting these choices into effect isn't specified in the Virtual Assets Law.
The purview of Law
The Virtual Assets Law is quite broad in its application. The phrase "virtual assets" refers to a digital form of value that may be transferred, exchanged, or used as payment for investments. FTUs and virtual currency are two types of virtual assets (non-fungible tokens).
Operations Requiring Authorization
Dubai including free zones, is within the purview of the Virtual Assets Law but it excludes DIFC. However, government virtual asset services are not covered by it. Companies that are governed by the Virtual Assets Law and are based in Dubai are prohibited from engaging in specific regulated activities unless VARA grants them permission to do so.
Additionally, these organizations are capable of doing the authorized actions within the boundaries of their permission. According to the terms of the Virtual Assets Law, the enterprises will need VERA's approval for a wider variety of operations.
Managed custody and management of virtual assets are some of these operations. VERA's approval is also needed in order to operate and manage a virtual asset platform. In addition, the legislation specifies that VERA may add newer provisions and regulations to simplify the performance of regulated activities. In addition, VERA is free to add new tasks to the list in order to ensure compliance with the Virtual Assets Law.
You should know: Dubai Enacts Its First Law Governing Virtual Assets
License and other Legal Requirements
The existing conditions must be met by anybody wishing to apply for a license. To abide with Dubai's Virtual Assets Law and launch a business there, companies must first get a commercial license from the city's licensing authority.
Companies are also required to abide by extra regulatory criteria on top of licensing requirements. The Virtual Assets Law is completed by these regulations.
The New Regulatory Authority's Responsibilities
The Virtual Assets Law grants VARA a wide range of jurisdiction, including the following areas:
- Governing the administration and operation of service providers and Platforms for virtual management.
- Approving trade services for virtual goods and money.
- Approving exchange services for various virtual assets.
- Coordinating, managing, and controlling the distribution and award of virtual assets.
- Establishing and putting into place the regulations required to safeguard investors and dealers of virtual asset while preventing unlawful activity and increasing transparency.
The Virtual Assets Regulation Act (VARA) must be wholly complied with by all legal persons and commercial organizations covered by the Virtual Assets Law. Businesses must provide documents and records upon request from VARA to exert their power and carry out their responsibilities
Collaboration with relevant Authorities
Soon, VARA will collaborate with the UAE Central Bank to implement steps to preserve and stabilize the country's financial system. This move might result in a significant increase in corporate transactions involving virtual assets.
You should read: Crypto assets and regulatory framework in UAE: an overview
Sanctions and Penalties
The Virtual Assets Laws give VARA the authority to impose sanctions on organizations engaging in illegal behavior. These behaviors consist of:
- Issuance of Authorization (IOA) suspension
- Suspension of a certain virtual asset services provider's operations Cancelling virtual asset transfers in particular circumstances
The Board of Directors of the DWTC Authority will eventually create a list of the breaches committed by VAL and the associated fines. The entity's permission for a period of six months may be suspended by VARA, or it may even be completely revoked. To terminate the entity's trade license, VARA will then work in concert with the appropriate license granting body in Dubai.
As was mentioned before, organizations who violate the Virtual Assets Law risk severe repercussions due to the penalties issued by VARA.
For more information about the topic, don't hesitate to contact HHS Lawyers and Legal Consultants.