Crypto-related financial crime has dominated news cycles, seeing the collapse of various crypto firms like FTX, and fuelling doubts about the safety and future of cryptocurrency businesses. While many have been deterred, the UAE has utilized such failures as learning opportunities, using these ordeals to inform their own long-term crypto strategy.
On Monday, the Dubai Virtual Assets Regulatory Authority (“VARA”) published its Virtual Assets and Related Activities Regulations 2023 (“Regulations”), setting out a robust framework for the governance and oversight of Virtual Assets (“VA”). The Regulations seek to future-proof the UAE’s burgeoning crypto market and insulate it from the unrelenting volatility of global crypto trends. Simultaneously, it looks to reaffirm the UAE’s commitment to ensuring that regulatory oversight addresses the global risks of money laundering and terrorist financing (“ML/TF”) emerging from potential exploitation of new technologies.
Although VARA has granted Minimal Viable Product (“MVP”) licences to companies such as Komainu and Binance, VARA is yet to grant any operating permits; therefore, the implementation of a solid regime at this stage is a strong impetus for prospective licensees to ensure they are compliant from the get-go. From a regulatory perspective, this provides VARA with an effective, uniform standard to assess VA licence applicants, with a high threshold for approval.
The Anti-Money Laundering and Combatting the Financing of Terrorism (“AML/CFT”) provisions echo those of the UAE Federal AML/CFT law, as well as supplementary VARA provisions included in the Rulebooks, specifically VARA’s Risk Management Rulebook. In addition to AML/CFT, the Risk Management Rulebook extends to the implementation of mandatory Anti-Bribery and Corruption (“ABAC”) policies and procedures. A dedicated chapter on ABAC provisions imposing specified obligations on regulated entities is an important inclusion, and is a rare inclusion in regulatory frameworks in the UAE. With luck, this may spur other UAE regulators and supervisory bodies to shortly follow suit, creating a far more uniform standard for ABAC protections amongst the UAE’s private sector.
Through the fusion of Federal Laws and international best practices, the Regulations are an apt reflection of the UAE’s quest to attract major talent from the crypto sector and establish itself as a global crypto hub. In doing so, VARA must continue to toe the line between creating a crypto-friendly regulatory environment, while moderating enthusiasm with effective controls against abuse. Given the cross-jurisdictional nature of the VA market, global governance is a necessity, and cooperation is key in the fight against financial crime.
VARA launches the first-of-its-kind VA framework structured to accelerate our New Economy agenda, augmenting secure, and sustainable ‘global’ market growth. This custom-designed construct reflects UAE’s commitment to building responsible safeguards, and Dubai’s confidence in delivering a progressive VA ecosystem that nurtures next-gen innovation. - His Excellency Helal Saeed Almarri, Director General Dubai's Department of Economy & Tourism, and Chairman of VARA's Executive Board