UAE’s Regulatory Ecosystem for Crypto Assets
Serious innovators, fintech enthusiasts, digital services operators, investors, businesses and entrepreneurs in search of the right digital marketplace can look to the UAE for a favourable to organise and carry out their affairs.
With a framework of laws, policies and secure state-of-the-art infrastructure for digital services, complemented by pervasive smart government programmes, the UAE’s regulatory ecosystem has evolved steadily in sync with market developments, anti-financial crime rules and other global standards.
The UAE has built confidence in its jurisdiction through investment in an agile, robust, comprehensive, reliable, and predictable regulatory ecosystem for crypto assets and crypto asset service providers.
This is not surprising given UAE’s current chairmanship of the Agile Nations Network (ANN). At the recent ANN meeting the UAE encouraged member states to innovate and develop new policies and flexible regulations to support the new economy, focusing on digital assets and financial transaction technology, in a way that promotes the launch of innovative projects in emerging economic fields.
The UAE has five regulators for crypto asset activities: the Central Bank (CBUAE); the Securities and Commodities Authority (SCA); the Dubai Virtual Asset Regulatory Authority; the ADGM Financial Services Regulatory Authority (FSRA) and the DIFC Dubai Financial Services Authority (DFSA). Complementing this framework are several MOUs between the SCA and several commercial freezones such as the DMCC and DWTC. These MOUs permit these authorities to license certain crypto asset activities in partnership with the SCA as regulator.
Regulation of investment activities in the UAE, including the financial freezones, extends to crypto assets that are digital representations of conventional securities. This is reflective of the substance over form approach in which It is the characteristics exhibited by the token that determines how it will be regulated, rather than what it may be called. In recognition of the unique risks posed by the cryptographic attributes of these assets, additional regulatory measures may apply, particularly when dealing with retail clients.
Stored Value Facilities (SVFs)
SVFs are regulated on the mainland by CBUAE, and by FSRA in the ADGM. CBUAE does, however, recognise crypto currency as money’s worth, permitting its use as stored value for the payment of goods/services. DFSA has a public consultation underway to expand its regulatory scope of covered crypto assets, including SVFs.
 ANN was established by the World Economic Forum (WEF) in partnership with the OECD as an international cooperation network focusing on the development of creative solutions for government regulatory practices and proposes mechanisms to consolidate government flexibility and readiness for the future in various areas of administration and government work. ANN consists of seven countries: UAE, UK, Canada, Denmark, Italy, Singapore, and Japan.
Other Digital Tokens
Crypto assets that are not representations of security type tokens or SVFs are many and varied. The regulatory approach (SCA and FSRA) has been to include, by default, everything that does not qualify as a security-type token within an “other” category, from which a list of exceptions identifying those tokens that will not be regulated at all is created. Under SCA’s regulatory ambit, the “other” category is called “commodity tokens” and regulated within the prescriptions set by the governing regulations. The FSRA’s “other” list is called “virtual assets” and the DFSA’s proposed “other” list is called “crypto tokens”.
VARA is a game changer in the space for three main reasons. First, it is the first of its kind (in the world) dedicated crypto asset regulator. Second, it is an Emirate level regulator. Third, (based on its announced intention to regulate NFTs), the breadth of its regulatory powers conceivably covers the widest range of crypto assets within a single regulatory portfolio. The pending VARA regulations will no doubt provide clarity on the statement. Notwithstanding, VARA has demonstrated a willingness to move with the market and has within weeks of being established, licensed major crypto service providers under a “test-adapt-scale” model.
The UAE has reached a threshold of maturity in its national digital infrastructure and its crypto regulation. It is poised to enter a new phase. All Regulators are involved in public consultations for expanded regulatory scope, i.e. DFSA moving to regulation of non-securities type tokens, SCA is introducing Crowdfunding Regulations, ADGM heralding Virtual Asset Frameworks 2.0., and the anticipated Regulations from VARA.
With a such a rich selection of crypto regulatory options available in the UAE, making the right choice, whether as investor or entrepreneur, requires expert support familiar with the UAE, its regulatory landscape and its market options to guide your decisions on –
- appropriate structuring of your business proposal
- defining the characteristics of the token to determine its regulatory fit,
- assessing whether a provider is engaged in a regulated activity,
- manoeuvring the data protection regulatory landscape,
- finding the right crypto jurisdiction, and
- coordinating regulatory engagements.
How we can help…
has built up market-leading competencies in structuring, advising and consulting on UAE crypto operations. Rethink was amongst the first professional advisors representing clients seeking crypto licenses from FSRA. With our team of specialists, we can assist a business at any point in its life cycle, from start-up to changing a business model.
Contact us for a consult on how to start or transition your crypto business in any of the UAE jurisdictions.
Who We Are?
Re/think is a boutique accounting, audit, advisory, regulatory compliance, and tax advisory firm with offices in Dubai and Abu Dhabi (ADGM) focused on providing businesses of varying sizes with timely, proactive, and customized business solutions from start-up and early development to the latest stages of a business lifecycle.
Partner & Director of Regulatory and Compliance Services
Associate Director of Compliance