On 28 February 2022, the Ruler of Dubai issued Law No.4 of 2022 on the Regulation of Virtual Assets (the “DVAL”) in Dubai, which came into effect on 11 March 2022. The DVAL is the first law in Dubai, which specifically regulates virtual assets and shall apply throughout Dubai (including free zones and special development zones, excluding the Dubai International Financial Centre (“DIFC”)).
(1) “virtual asset” as a “digital representation of value which can be digitally traded or transferred or used as an exchange or payment tool or for investment purposes” and
(2) “virtual token” as a “digital representation of a group of rights which can be issued and traded digitally through a virtual asset platform (a platform operated by a virtual asset provider licensed by VARA)”.
The DVAL envisions the establishment of the Dubai Virtual Assets Regulatory Authority (“VARA”), a public entity mandated to authorize virtual asset related activities in Dubai and to establish the rules and controls governing the conduct of such activities. The VARA will be affiliated with the Dubai Word Trade Centre Authority (“DWTCA”), the public entity that oversees the Dubai World Trade Centre free zone.
Key features of VARA
Key features of VARA include (without limitation):
- VARA will have a legal personality and financial and administrative autonomy, with an independent and juridical capacity to protect and regulate the stakeholders in virtual asset services. VARA will be affiliated with the Dubai World Trade Centre Authority (DWTC).
- VARA is responsible for regulating, supervising and overseeing the issuance, offering and relevant disclosure processes of virtual assets and NFTs.
- VARA will also cooperate with other federal agencies, including the UAE Central Bank, to provide a code of ethics, general policy, and strategic plans, and be in charge of the enforcement of the VAL, but does not regulate services related to virtual assets on a federal level.
- Any natural person or legal entity offering virtual asset services can only do so if granted a license from VARA, and must be operating in the Emirate of Dubai and have a trade license from the relevant commercial authority in Emirate of Dubai. VARA’s mandate includes (without limitation) monitoring trading activities in virtual asset services to prevent price manipulation and establish high standards of protection for beneficiaries’ personal data.
Activities subject to Regulation
According to the new law, any person wishing to practice any virtual asset activities in Dubai must establish a presence in Dubai to conduct such business and obtain an authorization from DVARA. The activities which will be subject to the authorization from DVARA including the following
- Virtual asset platform operation and management services.
- Settlement and custody procedures services.
- Exchange between virtual assets and currencies (both domestic and foreign), and tween one or more forms of virtual assets.
- Virtual assets transfer services.
- Virtual asset custody, settlement, management, or control services.
- Services related to virtual asset wallets.
- Offering and trading in virtual tokens.
- Note that the VARA may add further activities to the above list that will require a permit to operate in Dubai.
The licensing requirements for the Activities regulated by the VARA will be set out in detail upon the issuance of the relevant Implementing Decisions. However, we expect that the VARA will, at a minimum, request the following from an applicant for authorization under the DVAL:
- Completion of a prescribed application form.
- Submission of an organization chart.
- Preparation of a business plan.
- Signing the MoU with the DWTCA
- On-going compliance with a code of professional ethics, which is yet to be released; and
- Payment of any fees associated with the application for authorization to the VARA.
Acts constituting a breach of the provisions of this Act and related resolutions and the monetary penalties to be imposed on a contravener shall be determined by a resolution of the Board of Directors of the Dubai World Trade Centre.
VARA may take additional action in the event of any contravention:
- Suspension of the permit for a period not exceeding six months
- Withdrawal of the permit
- Coordination with the relevant trade licensing authority in the emirate to revoke the trade license.
Interaction with Federal Regulations
The Activities to be regulated by the VARA under the DVAL include substantial overlaps with the activities regulated by the Securities and Commodities Authority (“SCA”) and the Central Bank of the UAE (“CBUAE”) under existing UAE federal laws.
The DVAL highlights that the VARA will be linked to the DWTCA and shall coordinate with the CBUAE “in all matters to ensure the protection and stability of the financial system” in Dubai. Separately, we understand that both the SCA and the DWTCA have entered into a MoU in September 2021 to support the offering, regulation, issuance and trading of virtual assets within the DWTCA’s free zone.
The precise nature and extent of the VARA’s association with the DWTCA, the SCA and the CBUAE remains to be determined. It is also unclear at this stage, what the VARA’s relationship with the SCA and the CBUAE will be in coordinating the regulation of the Activities, and whether overlapping or consolidated licensing regimes will be imposed with respect to virtual asset activities in Dubai.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)Associate Partner
Ahmad Alagbari Chartered Accountants