Crypto Oasis: How the UAE is the Middle East's Digital Asset Champion

The UAE has built a set of rules that are largely crypto-friendly and adaptable to regional characteristics, and will eventually be able to standardize the rules.

The United Arab Emirates is reportedly preparing to begin issuing federal licenses for virtual asset service providers (VASPs) by the end of the first quarter of 2022. The move is expected to be part of a complex regulatory framework that the Middle Eastern country hopes to build on its path to becoming one of the world’s most crypto-friendly jurisdictions. What might this trajectory look like for the UAE?

proposed system

The UAE Securities and Commodities Authority (SCA) is reportedly finalizing rules that will allow digital asset firms to do business in the country. In developing the legislation, the SCA took into account the Financial Action Task Force guidelines and current legislative developments in the US, UK and Singapore.

In what has been dubbed a "hybrid approach," the SCA would oversee the digital asset market through dialogue with the United Arab Emirates' central bank, without directly interfering with financial institutions in the country's major financial centers, such as Dubai and Abu Dhabi. Day-to-day licensing procedures. The government also reportedly intends to create a regulated environment for crypto mining.

Current Outlook

The United Arab Emirates is a federation of seven emirates. Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Aquin. Typically, the federal government has the final say on financial matters, and the two main bodies that define financial regulation are the UAE Central Bank and the SCA. However, the federation includes several free zones, which are granted a degree of autonomy in setting financial rules.

In fact, there are already around 30 VASPs operating in the country's free zones. The Dubai Multi Commodities Centre (DMCC) has 22 VASPs, the Abu Dhabi Global Market (ADGM) has six and the DSOA has one.

Each center is overseen by its own regulator. ADGM corresponds to the Financial Services Regulatory Authority, while Dubai districts are governed by different agencies. DIFC is regulated by the Dubai Financial Services Authority (DFSA), while DMCC is directly governed by the nationwide SCA.

intricate regulations

The current rules - naturally, given the diversity of regulation - present a somewhat confusing picture. The DFSA, for example, started rolling out its rules in 2021. According to their regulations, any entity operating a cryptocurrency exchange should seek approval from the DFSA. But currently, the regulation only covers those digital assets that qualify as “investment tokens”. DFSA intends to incorporate cryptocurrencies and utility tokens into its framework at a later stage.

Meanwhile, the SCA, which oversees the DMCC and the “onshore” UAE, provides a more detailed framework called “Regulation of Crypto Asset Activities.” It contains a clear definition of a cryptocurrency asset and applies to most of its forms.

Overall, despite the need to navigate this regulatory diversity, the UAE appears to have a largely crypto-friendly legal environment. As Kokila Alagh, founder and CEO of Karm Legal Advisors previously told Cointelegraph, “These regulations provide certainty and open up new opportunities in the UAE, making the SCA a progressive regulator globally .