The United Arab Emirates (UAE) has emerged as a hub for digital innovation. With the recent advancements in virtual asset services, the country’s federal financial regulatory agency has taken a significant step.
The Securities and Commodities Authority (SCA) has announced its intention to accept licensing applications from firms looking to provide virtual asset services within the UAE.
We will delve into the requirements for virtual asset service providers (VASPs) and the implications of the newly introduced virtual asset law. We will also discuss the exemptions for companies already licensed in the country’s economic free zones and the regulatory compliance required for digital asset companies operating in Dubai.
Virtual Asset Licensing: A Mandatory Requirement for UAE VASPs
In a recent press release, the SCA outlined the necessity for all VASPs operating within the UAE to submit an application and secure a license from the regulator. This directive applies to every firm dealing with virtual assets for investment purposes except those licensed within the country’s economic free zones.
Digital asset companies based in the emirate of Dubai must adhere to the regulations set forth by the Virtual Asset Services Authority (VARA), Dubai’s financial regulator. To operate legally, these companies must obtain a license from VARA and comply with the SCA’s requirements.
The UAE Cabinet issued Resolution No. 111 of 2022 on December 11, 2022, to regulate virtual assets and promote an attractive investment, economic, and financial environment for global firms and institutions operating in this sector.
Following this resolution, the SCA declared on February 1 that it would oversee and regulate the virtual assets sector. The primary goal of this resolution is to protect investors’ funds in virtual assets from illegal practices.
Limitations and Exemptions for Virtual Asset Regulations
While the SCA’s resolution covers a broad range of virtual asset transactions for investment purposes, it does not apply to virtual assets used for payment purposes. These assets fall under the jurisdiction of the Central Bank of the UAE. Additionally, the resolution does not extend to economic free zones.
Blockchain lawyer Irina Heaver outlined the potential consequences of failing to comply with the new federal virtual asset law. Non-compliant firms could face financial penalties of up to 10 million AED ($2.7 million), disgorgement of profits, and criminal investigation by the public prosecutor.
The UAE’s proactive approach to virtual asset regulation reflects its commitment to fostering a secure and innovative financial environment. However, as the virtual asset landscape continues to evolve, businesses in the UAE must remain vigilant in their compliance efforts to avoid potential legal repercussions and stay ahead in this fast-paced industry.
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