One example is CoinMENA, an exchange company, which is licensed by the Central Bank of Bahrain, which has acknowledged cryptocurrencies as a legitimate method of payment in the country. Another example is Binance, a well-known cryptocurrency exchange, licensed in the US government, which made an attempt in the UAE, and which is not yet licensed as an exchange provider in Dubai. 

For the moment of this article's publication, the UAE is in the process of acknowledging and leveraging the attraction of the largest crypto giants to open their branches in the country. For instance, the founder of Binance expressed a deep interest in Dubai’s market, and signed the cooperation agreement with Dubai World Trade Center Authority (DWTCA), aiming to initiate the integrated system for the virtual assets sector. 

That being said, as circulation and engagement of crypto-currency in financial transactions grows, the UAE is exerting efforts in luring the world's biggest crypto companies: the government is determined to begin issuing federal licenses for virtual asset service providers (VASP).

Considering the issuing permits for VASP across the country’s Free Zones, Dubai Multi Commodities Center (DMCC) has issued 22 permits for VASPs, Abu Dhabi Global Market (ADGM) has 6, Dubai Silicon Oasis Authority (DSOA) has issued 1, and Dubai International Financial Center (DIFC) is not yet issuing permits for VASP for the moment. Another significant entity, which is regulating a financial market in the country, the Securities and Commodities Authority (SCA) is currently working on a legislative framework for licensing VASPs, being at the final stage of amendments. Additionally, a financial regulatory agency within DIFC, the Dubai Financial Services Authority (DFSA) issued its Consultation Paper No. 143 for the Regulation of Crypto Tokens for individuals, wishing to provide financial services activities in respect of Crypto Tokens.

Dubai Virtual Assets Law

Furthermore, on February 28, 2022, Dubai issued Law No. 4 of 2022 on the Regulation of Virtual Assets in Dubai (Dubai Virtual Assets Law or DVAL). Moreover, DVAL launches a separate authority - Dubai Virtual Assets Regulatory Authority (VARA), which will report to DWTC, and which aims to license and regulate virtual asset activities in Dubai, including VASP. The important note is that DVAL is effective only in Dubai, and not on a federal level. As for regulating in Dubai, DVAL covers Free Zones, however, does not cover DIFC. Additionally, VARA must ensure coordination with the UAE Central Bank, the data protection of beneficiaries, Anti-money laundering support (AML). Thus, individuals, requiring authorization from VARA to conduct virtual asset services, must have a trade license from the correspondent commercial authority in Dubai and must operate in this Emirate.

Read also: New framework to conduct crypto-activities in the UAE

While monitoring the licensing regulatory vehicle, the UAE is planning to pursue the hybrid approach, which means that SCA will monitor the regulation with the assistance of the central bank, while other jurisdictions are planning to issue independent daily licensing procedures. It includes due diligence, the application process, depending on whether the VASP will be set up in a Free Zone or mainland. However, it is worthwhile to note that the permit issued from SCA will be primary, and while jurisdictions are issuing their own regulations, licenses are required to receive permission from the regulatory body.

Thus, the willingness of Dubai to join and sustain a local competitive crypto hub environment is represented in a number of talks and events, devoted to a cryptocurrency, given that there are agreements being signed, the recruiting process for the local VASPs has been initiated already: Binance is building a local team, and San Francisco-based exchange Kraken is also expanding its operations to Abu Dhabi market.

Additionally, the potential future derivatives of transactions within the crypto sector are mining of cryptocurrencies, and Non-fungible tokens (NFTs), which are already implemented in several countries, and which represent the independent unploughed ground for the UAE. Several examples of NFT: a digital artwork, an item, which is used in a computer game, a domain name, an event ticket or a coupon, an essay, etc. Thus, NFTs E-Marketplace Provider includes the companies, which provide an online platform for buying and selling unique digital assets, which are called NFTs. The buyer and seller are required to pay commission, whereas the platform will help facilitate the commercial interaction between them. 

If you would like to have advice or assistance with licenses for virtual asset service providers in the UAE, please contact us.

Marsel Shadmanov 

Head of Corporate Services at Garant Business Consultancy DMCC

Phone +971 4 421 4335

Email info@garant.ae