Reflecting on the latest reforms in the UAE on regulating virtual assets, UAE issued Cabinet Resolution No. 111 of 2022 regulating the sector of Virtual Assets (VA) and Related Service Providers, which came into effect on 15 January 2023 (‘‘the Resolution’’). This Resolution continues to be seen as an important step as it mandates the licensing of specific virtual asset activities by the Securities & Commodities Authority (SCA) of the UAE or local licensing authorities of specific Emirates, except Financial Free Zones.
What are VAs and Virtual Assets Service Providers (VASPs)?
The Resolution defines VAs as:
- ‘‘the digital representation of the value of a property that can be digitally traded or transferred, and can be used for investment purposes. It excludes digital representation of paper currencies, securities or other funds. ’’
VASPs are defined as:
- ‘‘any legal person who carries on one or more activities or operations related to VA for the interest or on behalf of any person, including the VA platform operators, the VA brokers and the VA custodians and carries on any other activities in accordance with the provisions of the Resolution.’’
What is the Scope of Application?
The Resolution sets out a regulatory framework regarding VAs at the federal level as it applies to the VA sector and VASPs in the UAE, including Free Zones.
It is important to note that the Resolution does not apply to:
- VAs inside Financial Free Zones (including the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM));
- Digital securities and contracts of digital commodities which are governed by SCA regulations; and
- VAs used for payment including Stored Value Facilities, which fall under the remit of the UAE Central Bank (other than those approved by the UAE Central Bank to be listed and traded for the purpose of investment in the VA platform).
What are the Objectives of the Resolution?
The objectives of the Resolution include:
- developing a legislative system for the VA sector in the UAE;
- ensuring the compliance by the VA sector of all applicable anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations;
- supporting the UAE Government’s investment and economic efforts to attract global companies operating in the VA sector to provide their services in the UAE; and
- the protection of investors in the VA sector from illegal activities.
What are the Licensed Activities?
The Resolution outlines the following list of the activities which adhere to licensing by SCA that provides:
- VA platforms operation and management services;
- exchange services between one or more forms of VAs;
- VA transfer services;
- brokerage services for trading of VAs; and
- VA custody and management services over VAs.
This list of licensed activities may be amended from time to time.
What are the Violations and Penalties?
In violating the provisions of this Resolution, which dictates the powers of the SCA or local licensing authority, the following are the violations and penalties that include the following:
- issuance of a warning;
- suspension of a listing or trading of VAs; and
- imposition a fine of not more than AED 10,000,000 (ten million dirhams).
What is the Timeframe for Compliance?
All VASPs in the UAE who were licensed before the entry into force of the Resolution must satisfy all operational requirements and conditions as indicated in the Resolution within three (3) months of the date of entry into force of the Resolution. This time limit may be extended by the SCA.
What Is the Regulatory Supervision by SCA?
The Resolution clearly stipulates that the SCA is the responsible entity for supervising and controlling VA Activities, VASPS (including those licensed by the local licensing authorities) and VA transactions conducted inside the UAE, including in Free Zones and shall issue the resolutions required to regulate VA transactions and licensing of VASPs.
SCA may delegate all or any of its functions set out in the Resolution to VASPs and it is also noted that the Cabinet may delegate any of the SCA’s functions to any of the local licensing authorities (for example, the Virtual Assets Regulatory Authority (VARA) which was established pursuant to Dubai Law No. 4 on Regulating Virtual Assets in the Emirate of Dubai) according to the rules set by the Cabinet.
Moving Forward
With the issuance of this federal level resolution, we can only see that the UAE is committed to attracting investment in the VA sector whilst also ensuring that investors’ rights are protected. This would enhance the UAE VA regulatory framework as it continues to be developed and strengthened.
For more information on VAs or crypto disputes and how we can support our clients, feel free to contact Yazeed Samain at ysamain@maslaw.com