The government of the UAE implemented the Virtual Assets Law on 28th February 2022. It was introduced by Sheikh Mohammed Bin Rashid Al Makhtoum. This law is a crucial legislative development in Dubai.
It applies to virtual services that companies provide in Dubai & the other special development and free zones [excluding DIFC (Dubai International Financial Centre)].
Additionally, the Virtual Assets Law aims to build Dubai’s reputation as a vital player in the virtual assets market while creating favorable conditions. Not just that, this legislation is a milestone step in establishing the UAE as a global hub for digital assets and blockchain technology. Let us discuss the key aspects of this law and how they can impact virtual assets and related aspects in the UAE.
Notable Features of the Virtual Assets Law
1. New Regulatory Authority:
Implementation of the Virtual Assets Law led to the establishment of the Virtual Trade Assets Regulatory Authority (VARA) that allies with the Dubai World Trade Center Authority. The DWTCA is Dubai’s principal virtual assets regulator.
Thanks to the implementation of the Virtual Assets Law and the emergence of VARA, Dubai can work towards becoming a local & universal hub for virtual assets while boosting the digital economy.
Apart from the above factors, VARA also aims to improve cryptocurrency/blockchain technology awareness while encouraging relevant companies to set up their base in Dubai. Eventually, these efforts will establish the necessary framework to regulate, supervise and control matters related to virtual assets.
2. Implementation of Virtual Assets Law:
After the Virtual Assets Law came into force on March 11, 2022, provisions in other legislation conflicting with the VAL will be automatically repealed.
VAL is a vital step towards establishing a robust legal framework for virtual assets, but it needs further clarification and refinement.
It is the responsibility of the Director-General of DWTC Authority to make decisions regarding the Virtual Assets Law. However, the Virtual Assets Law does not state the accurate period to implement these decisions.
3. Scope of the Law:
The scope of the Virtual Assets Law is extensive. Virtual assets can be defined as a digital representation of value that you can trade, transfer, or use as a mode of payment for investment purposes. Examples of virtual assets include cryptocurrency and FTUs (non-fungible tokens).
4. Activities Subject to Authorization:
The jurisdiction of the Virtual Assets Law includes Dubai plus its development and free zones (excluding DIFC). However, it does not cover virtual assets services at a federal level. Companies operating in Dubai that come within the purview of the Virtual Assets Law cannot engage in certain regulated activities unless VARA authorizes them to do so.
Furthermore, these entities can carry out the approved activities within the defined limits of their authorization. For a broader range of activities, the businesses will need VERA’s authorization under the provisions of the Virtual Assets Law.
These activities include managing the custody & administration of virtual assets. Operating and managing a virtual asset platform also requires VERA’s permission. Moreover, the law also states that VERA can introduce newer rules and clauses to streamline the practice of regulated activities. Besides, VERA can also include more activities within the list to comply with the Virtual Assets Law.
5. Licensing & Continuous Requirements:
Applicants who want to get a license must meet the revised requirements. Under the Virtual Assets Law, companies must conduct their business while establishing their headquarters in Dubai while obtaining a relevant commercial license from Dubai’s licensing authority.
Apart from licensing, businesses also need to meet other legal requirements related to anti-money laundering, disclosure, transparency, and KYC (know your client). All these regulations and formalities complement the Virtual Assets Law.
6. Obligations of the New Regulatory Authority:
Under the Virtual Assets Law, VARA has a broad scope of authority which includes the aspects below:
- Regulating the operations & management of virtual management platforms plus service providers.
- Approving exchange services between virtual assets and currencies.
- Authorizing exchange services between multiple virtual assets.
- Organizing, supervising & controlling the granting & offering of virtual assets.
- Preventing illegal activities and boosting transparency while developing & implementing rules necessary to protect investors & virtual asset dealers.
All business entities and individuals that come under the purview of the Virtual Assets Law must fully comply with VARA. Businesses must furnish documentation & records when VARA asks them to do so because they require them to exercise their powers while fulfilling their responsibilities.
7. Coordination with Other Authorities:
Soon, VARA will work with the UAE Central Bank to undertake measures for protecting and stabilizing the nation’s financial system. This step may cause a considerable rise in business transactions related to virtual assets and the regulation of decentralized finance (Defi) apps and virtual asset landing. Defi and virtual asset landing have evolved considerably in the past few years.
8. Penalties & Sanctions:
The Virtual Assets Laws bestow VARA with the power to take disciplinary action against entities that indulge in unlawful actions. These actions include:
- Suspension of IOA (Issuance of Authorization)
- Suspending the activities of a particular virtual asset services provider
- Canceling transactions with virtual assets in some situations
Eventually, the DWTC Authority’s Board of Directors will compile a list of VAL’s violations and the applicable penalties. VARA can suspend a 6-month authorization granted to the entity or even revoke it entirely. Next, VARA will also coordinate with the relevant license issuing authority in Dubai to cancel the entity’s trading license.
As seen above, sanctions and penalties imposed by VARA can have severe consequences for entities that violate the Virtual Assets Law.
Keep your Business ahead of the Curve with NR Doshi & Partners
We thoroughly understand the required legal framework and authority laid down by The Financial Services Regulatory Authority (FSRA). We help you keep an eye out for the factors below:
- Be aware of the virtual assets, business practices, services, and products that the UAE has placed in the forbidden category. VARA will release the details soon.
- VARA may create rules associated with clarifying and associating the types of virtual assets. It can also frame regulations to deal with virtual assets.
- Under the Virtual Assets Law, VARA can even introduce KYC/AML regulations and other provisions to monitor the activities of virtual asset service providers.
- Additionally, VARA might even introduce a code of ethics for virtual asset service providers.
- Once the authorities release the official regulations related to the new law, VARA will post the information on its website.
As seen in the above points, implementing the Virtual Assets Law will be a landmark step in making the UAE a global hub for virtual assets and blockchain technology. If you want to transform your business in The UAE’s flourishing digital technology sector, look no further than us.
We have been providing impeccable accounting and financial services for over 35 years with a solid grasp of the FinTech landscape. Call us at +971 50 6591233 or simply write to us at email@example.com; one of our experts will contact you shortly.