Original | Odaily Planet Daily ( @OdailyChina )
Author | Fu Howe ( @vincent 31515173 )
2024 is the year when the crypto industry takes a big step towards the mainstream. US Bitcoin and Ethereum spot ETFs have been approved and started trading, and a number of traditional asset management giants such as BlackRock and Fidelity have begun to get involved in the crypto business. With the rapid development of the cryptocurrency market, governments and regulators have gradually realized the potential risks, such as money laundering, fraud, and market manipulation. More and more countries have begun to strengthen supervision and introduce relevant laws and regulations to protect investors and maintain market stability.
Different regions have adopted their own distinctive approaches to crypto asset regulation. The United States, relying on its strong financial foundation, continues to dominate the crypto industry, and the U.S. SEC is also increasing its regulatory efforts on the crypto industry. As a long-established financial center, Hong Kong continues to introduce new policies to embrace Web3, and its rigorous licensing and stablecoin sandbox testing all demonstrate its strength. Southeast Asian countries such as Singapore, Thailand, and Vietnam are also actively embracing Web3. The repeated industry summits and the entry of emerging crypto companies have injected new vitality into the development of the Asian crypto industry.
Odaily Planet Daily has launched a series of reports titled New Trends in Global Crypto Regulation, dedicated to providing cutting-edge regulatory information for Web3 builders. By clarifying the regulatory landscape from a global perspective, Web3 builders can accurately grasp the policy orientation of different regions, innovate within a legal and compliant framework, give full play to technological advantages, and help Web3 develop in a healthier, more orderly, and innovative direction.
In this issue, we focus on the new gathering place for Web3 builders - the UAE. As a financial center in the Middle East, the UAE is actively adjusting its cryptocurrency regulatory policies to enhance its competitiveness in the global financial market. The UAE government is committed to building a safe and transparent virtual asset ecosystem to attract international investors and innovative companies. Dubai has rapidly risen in this process and has become a gathering place for cryptocurrency companies, attracting a large number of global crypto talents and capital.
The UAE is a federal country consisting of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah. Each emirate enjoys independent autonomy, which has led to unique policies in cryptocurrencies in each emirate, especially Abu Dhabi and Dubai. This situation makes the overall cryptocurrency regulatory policy in the UAE complex and diverse.
Odaily Planet Daily will gradually analyze the UAEs regulatory policies on cryptocurrencies and reveal why Dubai has become one of the most popular regions for the crypto industry.
The UAE’s complex crypto regulatory strategy: three major, two special
In the UAE, the GDP of the two emirates of Abu Dhabi and Dubai accounts for 80% of the countrys total, which gives them an important voice in the national economy and leads to relatively independent cryptocurrency policies. In addition, the two emirates have established multiple economic free zones, including Abu Dhabi Global Market (ADGM) in Abu Dhabi and Dubai International Financial Center (DIFC), Dubai Multi Commodities Center (DMCC), Dubai World Trade Center (DWTC) and Dubai Airport Free Zone Authority (DAFZA). The Emirate of Ras Al Khaimah has also established the Ras Al Khaimah Digital Asset Oasis (RAK).
When studying the UAE’s cryptocurrency policy, it can be summarized as “three major and two special”. Among them, “three major” represents:
Central Bank of the United Arab Emirates: Responsible for the regulation of cryptocurrency payments.
Securities and Commodities Commission (SCA) of the UAE: responsible for the regulation of cryptocurrency investments.
Dubai Virtual Asset Regulatory Authority (VARA): The world’s first dedicated virtual asset regulator.
The “two special” refers to:
Abu Dhabi Global Market (ADGM): Independent of other regulators, it has its own crypto regulatory policies.
Dubai International Financial Centre (DIFC): also has independent crypto regulatory policies.
The basis for this division is that the UAE Central Bank focuses on cryptocurrency payment regulation, while SCA and VARA represent the main licensing authorities. ADGM and DIFC are not directly governed by the above policies and each independently formulates crypto regulatory policies.
In addition, the Dubai Multi Commodities Centre (DMCC) also has an independent license, but the relevant laws do not exclude DMCC. The free zone should be regulated by the Dubai Virtual Asset Regulatory Authority (VARA), and the rest should be subject to the jurisdiction of the Big Three according to their physical location.
Central Bank of the United Arab Emirates
The Central Bank of the United Arab Emirates (CBUAE) has adopted several strategies in cryptocurrency regulation to ensure compliance and security of the market. First, the UAE has implemented Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations, which are based on international standards, especially the recommendations of the Financial Action Task Force (FATF), to combat money laundering and terrorist financing. Financial institutions must conduct customer due diligence, monitor transactions, and report suspicious activities in a timely manner to fulfill their legal responsibilities.
In addition, in February 2023, the Central Bank of the UAE also issued the Guidelines for Licensed Financial Institutions on Risks Associated with Virtual Assets and Virtual Asset Service Providers to help regulated financial institutions understand and effectively implement these regulations and ensure that they can adapt to the ever-changing compliance environment.
At the same time, CBUAE issued the Payment Token Services Regulation (PTSR) in June 2023, which specifically regulates stablecoins and related services. The regulation applies to the entire UAE, excluding the Dubai International Financial Center (DIFC) and the Abu Dhabi Global Market (ADGM). In the PTSR, payment tokens are defined as stablecoins denominated in fiat currency. The regulations require entities registered in the UAE to apply for a payment token service license and stipulate that it is prohibited to provide payment token services or use virtual assets for payment without permission. To ease the transition, the PTSR sets a one-year adaptation period to enable existing participants to gradually follow the new regulations.
In general, the CBUAE mainly formulates anti-money laundering (AML) and counter-terrorist financing (CFT) regulations and requires crypto companies to comply with these regulations. The Payment Token Services Regulations are more inclined to the regulatory direction of stablecoin payments. Tether, the issuer of USDT, also announced in August last year that it would cooperate with Phoenix Group (PHX), a cryptocurrency group listed in Abu Dhabi, to launch a token pegged to the UAE dirham.
Securities and Commodities Commission (SCA) of the United Arab Emirates
The Securities and Commodities Commission of the United Arab Emirates (SCA)s regulatory strategy for the crypto industry aims to establish a comprehensive regulatory framework for virtual assets (VAs) and virtual asset service providers (VASPs) to promote market stability, protect investors, and maintain financial integrity. SCA is aware of the diversity of virtual assets, including cryptocurrencies and non-fungible tokens (NFTs), whose unique characteristics pose challenges to the traditional financial system. Therefore, SCA issued the Guidelines for the Regulation of Virtual Assets and Virtual Asset Service Providers in 2023 to regulate the use of virtual assets and the activities of service providers.
According to the regulatory guidelines, SCA divides virtual assets into two categories: virtual assets for investment purposes and virtual assets for payment purposes. Investment assets are regulated by SCA, while payment assets are regulated by the Central Bank of the UAE unless the Central Bank specifically approves them for investment. In addition, certain digital assets, such as digital securities and NFTs that are not used for investment, are also not regulated by SCA.
The SCAs regulatory objectives include ensuring investor protection, maintaining market integrity, and reducing risks associated with virtual assets. These objectives form a strict licensing framework to ensure that only qualified and financially sound entities can operate in the virtual asset market. The SCA stipulates that the following activities involving virtual assets must be licensed:
Operation and management of virtual asset platforms: any entity that provides services in operating or managing virtual asset trading platforms.
Providing virtual asset exchange services: facilitating the exchange between different types of VAs or between VAs and legal tender.
Provide virtual asset transfer services: realize the transfer of virtual assets between users or platforms.
Brokerage services for virtual asset transactions: acting as an intermediary for virtual asset transactions between buyers and sellers.
Custody and management of virtual assets: Providing secure custody and management of VAs, including control over them.
Financial services related to the issuance of virtual assets: Participating in financial services related to the issuance or sale of virtual assets, such as token issuance.
To regulate these activities, the SCA provides specific licenses and associated capital requirements for the following activities:
Virtual asset platform operators: only for virtual asset platform operations - paid-in capital of AED 1 million; while also engaging in other virtual asset service provider activities - paid-in capital of AED 5 million. Both are required to maintain six months of operating funds.
Virtual Asset Custodian: Paid-up capital of AED 4 million, required to maintain 6 months of operating funds.
Virtual Asset Financial Advisor: Paid-in capital of AED 500,000, which is required to maintain 6 months of operating funds.
Virtual Asset Portfolio Manager: Paid-up capital AED 3 million.
Virtual Asset Broker: Paid-up capital AED 2 million.
Virtual Asset Dealer: Paid-up capital AED 30 million.
Among other things, virtual assistant trading platforms are considered equivalent to multilateral trading facility (“MTF”) platforms used in traditional financial markets, meaning they are subject to similar regulatory standards.
In terms of licensing requirements, applicants must meet all regulatory standards set by the SCA, including capital adequacy and anti-money laundering (AML) and counter-terrorism financing (CFT) compliance requirements. The SCA requires qualified entities to maintain sufficient capital to support operations and implement an effective compliance framework to detect and report suspicious activities. In addition, the SCA also stipulates specific standards for virtual asset platform operators to ensure the transparency and fairness of their operations.
In terms of technical protection, VASPs need to implement advanced security measures, including encryption and data protection. At the same time, SCA encourages VASPs to comply with international AML and CFT standards to ensure the traceability of virtual asset transactions. In addition, SCA emphasizes consumer protection, requiring VASPs to fully disclose risks related to virtual assets and ensure the safe management of customer assets.
In general, the UAE Securities and Commodities Commission (SCA) is one of the most important regulators in the UAE crypto industry. The Guidelines for the Supervision of Virtual Assets and Virtual Asset Service Providers issued in 2023 clarified the functional planning of the Central Bank of the UAE and the UAE Securities and Commodities Commission (SCA). In addition, in September 2024, SCA also signed a cooperation framework with VARA to clarify their respective regulatory scopes. SCA and VARA will formulate rules and procedures for licensing and supervising virtual asset service providers (VASPs). VASPs that wish to operate in Dubai must obtain a VARA license and can be registered with SCA by default to serve the wider UAE market.
Dubai Virtual Asset Regulatory Authority (VARA)
Dubais virtual asset regulatory framework is based on the Law No. (4) of 2022 of the Emirate of Dubai on the Regulation of Virtual Assets . The law came into effect in March 2022 and established a dedicated regulatory agency, the Dubai Virtual Asset Regulatory Authority (VARA), to oversee virtual asset activities in all areas of Dubai, including free zones and special development zones, but excluding the Dubai International Financial Center (DIFC). While establishing the highest global standards, VARA also protects the rights of investors and aims to promote the development of a borderless economy.
VARAs regulatory framework consists of a set of top-down laws and rules. The Virtual Assets and Related Activities Regulations 2023 provides specific regulatory details covering license applications, anti-money laundering, combating terrorist financing and marketing. This framework emphasizes economic sustainability and cross-border financial security, and addresses global money laundering (ML) and terrorist financing (TF) risks arising from the abuse of new technologies.
VARA defines eight types of regulated virtual asset activities, and any VASP that wishes to provide these services must apply for relevant licenses before operating. Specifically, they include:
Virtual Asset Advisory Services: Providing clients with advice and strategies on the virtual asset market, helping them understand the complexity of the market.
Virtual asset broker services: including arranging virtual asset transactions, accepting orders, facilitating transactions, etc., to provide customers with convenient trading channels.
Virtual asset custody service: responsible for the safekeeping of customers virtual assets, acting only according to customers instructions and ensuring the safety of assets.
Virtual asset trading services: involve the exchange of virtual assets with legal currency or other virtual assets to improve market liquidity.
Virtual asset lending service: Provides flexible fund management methods, allowing users to borrow and lend as needed.
Virtual asset management and investment services: managing virtual assets on behalf of clients and implementing investment strategies to achieve asset appreciation.
Virtual asset transfer and settlement services: ensuring the safe and efficient transfer of virtual assets between different entities or wallets.
Virtual asset issuance category 1: mainly involves the issuance of stablecoins pegged to fiat currencies, providing the market with a stable medium of exchange.
Each license has detailed compliance requirements to ensure that VASPs comply with relevant regulations when providing services and protect the rights and interests of customers.
In Dubai, all companies wishing to conduct virtual asset activities must obtain a license from VARA before operating. The application process is divided into two main stages:
Phase 1:
Submit an Initial Disclosure Questionnaire (IDQ) to Dubai Economy Tourism (DET) or the relevant free zone.
Provide the business plan and details of the companys owners and officers.
Pay the initial fee for application review (usually 50% of the license application fee).
Obtain preliminary approval to complete the companys legal formation and operational preparations, such as leasing office space and onboarding employees.
It should be noted that at this stage, even if preliminary approval is obtained, the applicant company is still not allowed to engage in virtual asset activities.
Phase 2:
Prepare and submit relevant documents according to VARA guidance.
Feedback interaction with VARA, which may include meetings, interviews, and submission of additional documentation.
Pay the remaining application fee and first years supervision fee.
Eventually obtain a VASP license, but it may come with operating conditions.
VARA reserves the right not to grant a license, especially if the company’s activities are outside the regulatory scope or do not meet regulatory standards.
For companies that conduct virtual asset business before February 2023, VARA established a legacy program that allows these legacy operators to register by filling out an initial disclosure questionnaire (IDQ), obtain a transitional license (LOP), and transition to a full regulatory regime within a limited time. This mechanism not only provides a 50% discount on license fees, but also reduces capital requirements, providing VASPs with ample time to adjust to comply with the new regulations.
On September 30, 2024, VARA amended several regulations . The new VARA regulations will officially come into effect on October 1, 2024, marking a major shift in Dubais virtual asset regulatory framework. The new regulations expand the scope of regulation to cover not only the marketing and promotion of virtual assets, but also a number of services such as consulting services, decentralized finance (DeFi) and custody services. The definition of virtual assets has also been updated, especially payment tokens, stablecoins and NFTs (non-fungible tokens).
The new regulations require companies engaged in virtual asset marketing to obtain a special license and disclose all major risks in promotional materials to ensure that the information is fair, clear and not misleading. Supervision of aggressive marketing strategies is also stricter, and propaganda that exaggerates potential returns is explicitly prohibited.
In addition, the new regulations introduce a graduated penalty system that imposes different penalties depending on the severity of the violation, with minor violations potentially resulting in administrative fines and serious violations potentially resulting in the revocation of business licenses. Existing businesses can continue certain activities before the new regulations come into effect, but new marketing and promotions must comply with the new standards.
According to the VARA public register , a total of 19 companies have applied for VARA licenses, including Binance, OKX, Crypto.com, etc.; there are three companies awaiting approval, namely: Bybit, WadzPay, and Deribit.
Overall, VARA plays a key role in Dubais virtual asset regulatory framework, setting detailed compliance requirements and a two-stage application process for companies to obtain licenses. From October 2024, the newly enacted regulations will expand the scope of supervision to cover marketing, consulting services, decentralized finance (DeFi) and custody services, while introducing a graded penalty system to deal with improper marketing and exaggerated publicity.
Abu Dhabi Global Market (ADGM)
Abu Dhabi Global Market (ADGM) is an international financial center established in Abu Dhabi, UAE, in 2013. ADGM aims to promote the development of financial services in the local and Middle East region and attract international investors and enterprises. As an independent economic zone, ADGM adopts the Anglo-American legal system and provides a transparent and efficient regulatory environment covering multiple fields such as banking, asset management, insurance and financial technology. In recent years, ADGM has begun to pay attention to cryptocurrencies and digital assets, striving to establish a robust regulatory framework in this emerging field.
ADGMs regulator, the Financial Services Regulatory Authority (FSRA), is responsible for developing and enforcing regulatory policies on crypto assets. In 2020, the FSRA issued a document coordinating the operation of digital securities within ADGM, and in 2022, it issued a Guideline on the Regulation of Virtual Asset Activities. These guidelines clarify the regulatory requirements for virtual asset providers, including compliance measures such as capital prerequisites, personnel controls, anti-money laundering (AML) and customer due diligence (KYC).
In addition, ADGM introduced a formal regulatory framework for decentralized autonomous organizations (DAOs) and other digital asset entities in 2023, allowing DAOs to operate legally and issue tokens to members. These policies not only provide clear guidance for market participants, but also promote Abu Dhabi to become a leader in digital asset innovation in the region.
Companies engaged in crypto-asset related business in ADGM need to apply for the corresponding license. The application process usually includes the following steps:
Submit an application: Companies need to provide detailed information on their company background, business plans and compliance measures.
Due diligence: FSRA will conduct due diligence on applicant companies to ensure that they meet regulatory requirements.
Obtain approval: Once approved, the company will be issued with the appropriate license, allowing it to operate legally within ADGM.
Licensed businesses are also subject to strict compliance requirements, including regular reporting and audits, to ensure ongoing compliance with regulatory standards.
In addition, ADGM has set up a fintech sandbox to allow companies to test their crypto-related products and services in a controlled environment. The main functions of the sandbox include:
Promoting innovation: Companies can develop and test new technologies in a relatively low-risk environment, driving financial technology innovation.
Lower barriers to entry: Startups can explore market opportunities without excessive regulatory burdens.
Real-time feedback: Companies can get real-time feedback from FSRA during the testing process to help them adjust and optimize the product.
This mechanism not only supports the rapid development of innovation, but also ensures that new products comply with regulatory requirements, thereby protecting the interests of market participants.
In general, the Abu Dhabi Global Market is able to regulate itself independently from the rest of the UAE, mainly due to its established legal framework and regulatory agencies. As an independent economic zone, ADGM has a flexible regulatory mechanism that can quickly adapt to changes in the global financial market, especially in the field of cryptocurrency and digital assets. Currently, Binance has obtained a financial services license (FSP) issued by FSRA to carry out custody and regulatory activities related to virtual assets.
Dubai International Financial Centre (DIFC)
Dubai International Financial Centre (DIFC) is a free zone in Dubai, UAE, established in 2004 with the goal of becoming one of the worlds leading financial centers. DIFC provides a favorable business environment for financial institutions, attracting many banks, insurance companies, asset management companies and other financial services companies. Its unique legal framework and tax policies make it a popular destination for international investors and businesses.
The Dubai Financial Services Authority (DFSA) regulates the crypto industry through two key policies:
In October 2021, the DFSA published the Investment Token Regime, which provides an initial regulatory framework for investment tokens (such as security tokens or derivative tokens). Investment tokens are defined as digital representations of rights and ownership, and are designed to ensure that institutions involved in marketing, issuing, trading or holding investment tokens within the DIFC follow the necessary compliance requirements.
In November 2022, the DFSA subsequently launched a comprehensive crypto token regime to regulate the cryptocurrency industry and market. The goal of the regime is to promote innovation while ensuring that businesses comply with best anti-money laundering (AML) and counter-terrorist financing (CFT) practices. It covers multiple areas such as financial crime, technology, fraud, governance and risk, providing consumer protection and market transparency.
Companies operating in the DIFC need to obtain a license from the DFSA to provide crypto services. The application process includes the following steps:
Eligibility assessment: Submit your application and the DFSA will assess the applicant’s business model and compliance capabilities.
Document requirements: Provide detailed business plan, technical architecture and risk management strategy.
Module Checklist: Firms must meet the DFSA’s comprehensive criteria, including business model, corporate governance, qualifications of senior management, financial resources and anti-money laundering measures.
Cost: The cost of obtaining a license can range from $2,000 to $70,000, depending on the type of service requested.
In addition, DFSA has also launched a regulatory sandbox to support fintech companies to innovate in a controlled environment. Its main functions include:
Safe testing: Companies can test their products on a limited customer base to validate technology and market demand.
Regulatory support: The DFSA provides guidance and feedback to help companies understand compliance requirements and optimize product design.
Fostering innovation: Sandboxes encourage companies to explore new technologies while ensuring the safety of the market.
In the DFSA regulatory sandbox, several fintech companies have successfully tested their innovative solutions. For example:
InstaRem: Received operating license in DIFC following successful testing of cross-border payment solutions.
Sarwa: Rapidly expanded the customer base by validating the smart investment advisory service through the sandbox.
BitOasis: Tested the compliance of its cryptocurrency trading platform in the sandbox and successfully obtained a license.
In general, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) have the same starting point. Both of their legal systems are Anglo-American law, which is quite different from other regions in the UAE.
How Dubai Became One of the Global Crypto Hubs
In recent years, Dubai has rapidly emerged as one of the global gathering places for cryptocurrency and blockchain technology. Its success is not only due to its geographical location and infrastructure, but also due to the governments policy support and open business environment. The following will explore the reasons for Dubais rise from the perspectives of hard power and soft power.
Hard power
Geographical location: Dubai is located in the strategic center of the Middle East, bordering Asia to the east and Europe to the west, and is an important bridge between the East and the West. This geographical advantage makes Dubai a global trade and financial center, attracting the attention of a large number of multinational companies and investors.
Talent pool: Dubai is committed to attracting the worlds top crypto talents. By providing good living conditions and career development opportunities, Dubai has attracted many blockchain experts and technical talents. This talent concentration provides strong support for the development of the crypto industry.
Capital power: As wealthy people around the world immigrate to Dubai, investors interest in the crypto market continues to increase. The city has become a popular gathering place for high-net-worth individuals and investment institutions, and the inflow of funds has provided sufficient capital support for the growth of local crypto companies.
Infrastructure: Dubai also has a fairly complete infrastructure for the digital economy, including the popularization of 5G networks, which provides strong support for technological innovation and business development. Efficient communication networks and advanced financial infrastructure have enabled the rapid development of crypto transactions and blockchain applications.
Soft Power
Degree of openness: Compared with other Middle Eastern regions, Dubai has shown greater openness in economic and social policies. This open environment creates more opportunities for crypto companies and makes it easier for foreign companies to do business here.
Legal and regulatory framework: Dubai has established a clear legal and regulatory framework to ensure the healthy development of the crypto industry. This transparency and predictability has attracted a large number of businesses and investors, while enhancing market confidence.
Summarize
Whether it is hard power or soft power, the fundamental reason why Dubai has become a global crypto hub is the support of the country. The UAE government has shown strong support for promoting the development of the crypto industry. By implementing preferential tax policies, such as zero tax rate for individual investors and 9% tax on enterprises, the government has created a superior operating environment for crypto companies. In addition, since 2016, the Dubai government has launched a blockchain strategy. In 2018, the UAE government launched the UAE Blockchain Strategy. The overall national policy strategy has also actively promoted the development of the digital economy and provided abundant opportunities.
Looking ahead, the prospects of the UAE and Dubai in the global crypto market remain very optimistic. With the continuous improvement of regulatory policies, the UAE is providing good conditions for the development of the industry. Especially in the context of increasingly stringent global cryptocurrency regulation, the UAE has demonstrated strong competitiveness with its open policies and flexible market mechanisms. With the further development of the global crypto market, Dubai is expected to continue to lead this field and become an important center of the global crypto industry.
