Data Protection, Privacy and Drones
Dubai issues law and establishes new regulator for virtual assets
Legal Development 29 March 2022 29 March 2022
Technology, Outsourcing & Data
The Emirate of Dubai in the United Arab Emirates has taken a further step towards becoming an international hub for virtual assets with the publication of a new law that will create the Dubai Virtual Assets Regulatory Authority. Dubai Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai (Virtual Asset Law) was issued on 11 March 2022. The Virtual Asset Law lays the foundations towards creating a regulated ‘onshore’ industry for virtual assets in Dubai. This article sets out some of the key features of the new regime.
New regulatory authority
A new authority named the Dubai Virtual Assets Regulatory Authority (VARA) will be created. VARA will sit in the Dubai World Trade Centre (DWTC) as an independent entity affiliated to the existing DWTC Authority. VARA’s regulatory scope extends throughout Dubai and covers all of the economic free zones in the Emirate with the exception of the financial services free zone, Dubai International Financial Centre (DIFC). VARA’s objectives include promoting Dubai as a hub for virtual assets, attracting investment in Dubai’s virtual asset sector and providing systems to protect investors in virtual assets.
To support the fulfilment of its objectives, VARA has been tasked with preparing rules and regulations in respect of virtual assets, proposing legislation in respect of virtual assets and acting as a supervisory authority for virtual asset platforms and for the issuance and offering of virtual assets.
We expect that further detailed regulatory rules will be released in the near future.
Scope of the new law
As explained, the Virtual Asset Law only lays down the foundation. As such, the definitions being used are fairly broad. For instance, the term ‘Virtual Asset’ is defined as:
“a digital representation of value that can be digitally traded, transferred or used as an exchange or payment tool or for investment purposes, including Virtual Tokens, and any digital representation of any other value determined by the Authority in this respect”.
This definition does not expressly state which virtual assets are included or excluded, whether it covers cryptocurrencies (and, if so, whether there are any criteria for inclusion) or whether non-fungible tokens (NFTs) will fall within the scope. We expect that future regulations and guidance issued by VARA will further clarify these matters.
General prohibition and licensing
While the scope is broad, the Virtual Asset Law creates a clear general prohibition on engaging in any activity that is subject to VARA’s scope without authorisation. These activities are:
- virtual asset platform operations and management services;
- exchange between virtual assets and currencies, whether domestic or foreign;
- exchange between one or more forms of virtual assets;
- transfer of virtual assets;
- custody and management of virtual assets or control over them;
- virtual asset portfolio services; and
- virtual offering and trading services.
Any entity wishing to carry out any of these activities must first obtain approval from VARA and then secure a licence. Details of the licensing process have not yet been published, although it was reported that VARA had granted at least one licence during its initial regulatory phase in the first few weeks since the law was passed.
UAE and virtual assets
The Virtual Asset Law follows the publication by the Dubai Financial Services Authority (DFSA) of Consultation Paper No. 143 on the Regulation of Crypto Assets in the DIFC. It should also be noted that the Abu Dhabi Global Market has already published detailed laws and regulations governing virtual assets in its jurisdiction. These laws and choice of jurisdictions suggest the UAE’s willingness to embrace new technologies and position itself as a global leader in the virtual asset and blockchain space.