Virtual Assets or Cryptocurrency Under UAE Law

Introduction

Digital currency, or cryptocurrency, is an alternative payment method developed with encryption methods. Encryption technology enables cryptocurrencies to act as both a currency and a virtual accounting system. The use and popular acceptance of cryptocurrencies like bitcoin and ethereum have grown in the last few years throughout the world economy, and the UAE has become a major player in this online financial industry.

The UAE has implemented particular laws and regulations, and it is necessary for virtual asset markets to protect investors, support innovation, and ensure profitability. This is evidenced by the issuance of the securities and commodities authority’s (SCA) Decision No. 23/2020, which regulates the crypto assets activities. The Central Bank of UAE and SCA regulate crypto assets and security tokens on a federal level, covering the UAE mainland and certain free zones.

Article 1 of cabinet decision No. (111) of 2022 defines virtual assets, virtual asset service providers, and authority. Furthermore, Article 4 states that those who engage in virtual asset activities such as operating platforms, exchanging, transferring, trading, and custody of virtual assets must obtain approval and a license from the SCA or the relevant authorities. As per article 6, the authority has the responsibility to oversee virtual asset activities, issue regulatory decisions to ensure data protection, and coordinate anti-money laundering (AML) measures. According to the aforesaid decision, Articles 8-10 state that service providers are required to comply with the UAE’s AML regulations as well as any applicable international standards, such as those established by the Financial Action Task Force (FATF). Further, Article 12 prescribes the penalties for any violation, such as warnings, fines up to AED 10 million, and more.

Cabinet decision No. (112) of 2022 serves as a supplement to the previously mentioned decision No. (111) of 2022. The new decision establishes the virtual assets regulatory authority (VARA) and grants specific regulatory responsibilities for virtual assets in the emirate of Dubai. In accordance with Article 2, VARA shall be responsible for licensing and supervising virtual asset-related activities in Dubai, including free zones. It stipulates that VARA implement AML rules and regulate the applicable data protection laws, make regulatory decisions, and advise investors on the potential risk of investing in virtual assets. In addition to this, VARA develops applications for service providers to report security risks and violations, collect fees, and impose penalties, including administrative fines. Further, Article 3 states that VARA and the SCA may cooperate in developing an integrated system of supervision and control, as well as in the sharing of fees, commissions, and fines. Dubai administrative decision No. (1) of 2023 establishes a grievance committee. The grievance committee handles complaints relating to actions, penalties, and VARA inspections.

Conclusion

The UAE has implemented cryptocurrency rules and regulations that aim to protect the investors and preserve financial stability. It is prohibited for the unlicensed companies offering virtual asset services. Individuals can reduce the risk associated with illicit activities, including money laundering, terrorism financing, and other financial crimes, by following these laws and regulations.