How does new virtual asset law operate and what impact will it have on businesses in Dubai?

The Regulation of Virtual Asset law (VAL) and the formation of the Dubai Virtual Assets Regulatory Authority (VARA) were created to create a legal framework for companies operating in the virtual assets sector. Virtual assets are value representations in the digital realm that may be exchanged, transferred, or utilized as a means of payment. Bitcoin and other non-fungible tokens are some of these (NFTs).

The newly passed Law No. 4 of 2022, known as the Virtual Asset Law (VAL) which regulates virtual assets in the Emirate of Dubai, was published on February 28, 2022, and it became effective on March 11, 2022. (“Dubai”). The Dubai Virtual Assets Regulatory Authority was established by the VAL, a key piece of legislation that regulates virtual assets in particular (“VARA”). For people buying virtual assets and businesses utilizing them in Dubai, the VAL creates a legal framework. It comprises non-fungible tokens as well as fungible tokens, like cryptocurrencies (“NFTs”).This article discusses what the new law comprises and what it means for companies doing business in this sector.

What is Virtual Asset?

A digital representation of value that may be exchanged, transferred, or utilized as a tool for payment or investment, including virtual tokens, is referred to as a “virtual asset.” It should cover many resources, such as cryptocurrencies, non-fungible tokens (NFTs), and security tokens.

A virtual asset is a cutting-edge technology that represents value and may be exchanged, transferred, saved, or used as a payment method in digital form. Virtual assets include bitcoin, crypto assets, and non-fungible tokens (NFTs).

Applicability of the Virtual Asset Law

• The Virtual Asset Law applies to all special development zones and free zones in Dubai and the supply of services connected to virtual assets.
• VAL does not cover operations using virtual assets at the Dubai International Finance Centre (DIFC).
• The Dubai Financial Services Authority (DFSA), which has authority over the DIFC, a well-known free zone in the UAE, has its own set of regulations regarding virtual assets. According to the DFSA, the DIFC will soon create its rules for managing cryptocurrencies.
• The Securities and Commodities Authority (SCA), the UAE’s securities regulator, has similarly announced that it is developing its regulatory framework for cryptocurrencies that it is about to introduce.

You may want to know: Dubai Enacts Its First Law Governing Virtual Assets

Establishment of Dubai Virtual Assets Regulatory Authority (VARA)

The Dubai Virtual Assets Regulatory Authority (VARA), a free-standing government organization connected to the Dubai World Trade Center Authority, was created under the Virtual Asset Law (DWTCA). The VARA will perform the following functions:

• VARA’s goal under the VAL is to grow Dubai’s digital economy to establish Dubai as the preferred regional and international location for all digital transactions involving virtual assets.
• The mechanisms, guidelines, and benchmarks required for governing and overseeing everything about virtual assets will be established by VARA.
• In addition to coordinating with the appropriate commercial licensing authority in Dubai to revoke the relevant entity’s commercial trade license, VARA will be solely responsible for enforcing the VAL in Dubai.
• For any violations of the VAL, VARA has broad enforcement powers, including the ability to impose penalties and fines and suspend licenses granted by it for six months.

Why is Virtual Asset Law so important?

Traditional banking and the virtual asset sector have been more linked in recent years, making regulating virtual assets more crucial. The vast majority of virtual assets depend on decentralized systems, which implies they were not designed to have a centralized regulator. It allows market participants to acquire and sell virtual assets without the scrutiny of a central bank or financial regulator. As more institutional investors begin to participate in virtual assets, the market is asking for some components of financial regulation to be applied to virtual assets, which should allow for more entrants while lowering the danger of committing financial crimes.

Read more about Crypto assets and regulatory framework in UAE

What does the new Virtual Asset Law imply for businesses in the UAE?

Recently, there has been an increase in crypto crimes. NFT fraud, wash trading, and money laundering have also increased dramatically lately in the virtual assets industry. In light of these problems, regulation is more essential than ever. Dubai has swiftly emerged as one of the world’s leading crypto centers, and its new law will draw more start-ups involved in this industry.

The UAE has already established itself as one of the jurisdictions that govern emerging technologies like those used in the production, sale, and purchase of virtual assets. This latest move further strengthens that position. Dubai is expected to continue expanding its number of crypto-related firms and companies focusing on anything Web 3.0 based.

From an institutional standpoint, it’s likely that Dubai’s new virtual asset regulatory law and the associated Dubai Virtual Asset Regulatory Authority (VARA), which was established to oversee, control, and regulate virtual asset services, will increase investments by companies already engaged in the cryptocurrency market.

HHS Lawyers and Legal Consultants will keep an eye on new advancements in this field and offer their knowledge and expertise. Please don’t hesitate to contact us if you have any questions about the Dubai Virtual Asset Regulation Law in the UAE.