Virtual asset is an innovative technology representing value which could be stored, traded, transferred or used as a payment tool in a digital form. Bitcoin, crypto assets, non-fungible tokens (NFTs) are all virtual assets.
The potential for the nascent virtual asset industry to grow is massive, given the huge popularity of virtual assets and the growing use of blockchain technology across all sectors. Having said that, the rapid growth has also led to concerns from a regulatory point of view, with international organizations, such as the FATF calling for global binding standards to prevent the misuse of virtual assets.
Dubai Issues New Laws
In line with this, the Emirates of Dubai has issued a new law called the Law No. 4 of 2022 (Dubai Virtual Assets Law), aiming to regulate the global virtual asset industry in the Emirate of Dubai. The law balances the need for business growth vis-à-vis the virtual assets, with the need for their regulation.
While this law applies to free zones and special development zones, it does not apply to the Dubai International Financial Centre.
This law came into effect on 11 March 2022.
What the Dubai Law Entails
Dubai Virtual Assets Law defines virtual assets as follows under Article 2.
A digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes. This includes Virtual Tokens, and any digital representation of any other value as determined by VARA.
It also provides a separate definition for virtual token, which is set out in Article 2.
A digital representation of a set of rights that can be digitally offered and traded through a Virtual Asset Platform.
Dubai Virtual Assets Law has established the "Dubai Virtual Assets Regulatory Authority" (VARA) in Dubai. The VARA is an important figure in the virtual asset industry as it is in charge of regulating, supervising and overseeing the virtual asset services in Dubai. It is entitled to classify and determine the virtual assets and prescribe the standards and rules for trading in them.
Providing services related to operations and management of virtual asset platforms would need a prior permit from VARA. Any services related to safekeeping, management or control services of virtual assets, virtual assets wallets and trading in virtual tokens also need permits from the VARA. VARA has oversight over all these services and can suspend or cease the dealing in a virtual asset in the Emirate of Dubai.
In addition to the permit from VARA, these activities require the person to set up its business in Dubai and have an appropriate license from the commercial licensing authority in the Emirates.
Given that these laws are new, its effective implementation remains to be seen.
Virtual Assets in Abu Dhabi
Virtual assets activities are regulated in the Abu Dhabi Global Market (ADGM) where a comprehensive virtual assets regulatory framework is in place. ADGM's virtual asset policy regulates virtual asset intermediaries, including custodians, broker- dealers, asset managers and advisors, focusing on consumer protection, prevention of financial crime and governance.
Under the ADGM's virtual asset policy, virtual assets are treated as commodities. Market intermediaries such as broker dealers, custodians, who deal and manage virtual assets, and multilateral trading facilities need to be licensed by the ADGM's Financial Services Regulatory Authority.
Conclusion
While it is true that the virtual asset industry is still in its nascent stage, United Arab Emirates has taken the pioneering steps to establish laws and regulations which will allow the industry to grow immensely within the regulatory framework.
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