Cryptocurrency seeks freedom in UAE – is it a regulatory pull?

The United Arab Emirates (UAE) has become a prime target for intrepid crypto businesses seeking a lucrative market — but questions remain over whether the region will live up to the hype.

Earlier this year, the emirate of Dubai passed a new law aimed at clarifying how local regulators will regulate the emerging asset class, bringing in leading cryptocurrency exchanges including Binance, FTX and Crypto.com.

This lawAs part of the UAE’s ambition to become a major crypto hub, it proposed a legal definition of digital assets. It established a licensing system and laid out penalties if companies were found to be operating out of bounds.

It also gave birth to the Virtual Assets Regulatory Authority (VARA), Dubai’s main crypto regulator responsible for combating money laundering and terrorist financing.

However, the law does exclude activities within the Dubai International Financial Centre (DIFC), an economic free zone with its own set of digital asset regulations regulated by the Dubai Financial Services Authority.

In fact, the UAE – technically a country – is legally complex. Dubai is just one of four jurisdictions, including federal agencies.

The capital, Abu Dhabi, touts itself as the first jurisdiction in the world to introduce a “comprehensive and customized” crypto regulatory framework, paralleling Dubai’s licensing and regulatory measures.

The region has long had its own set of rules within the Abu Dhabi Global Market (ADGM), another free zone, through guide Published under a subsection of the Financial Services and Markets Regulations 2015, which was later implemented in 2018.

An independent body, the Financial Services Regulatory Authority, oversees digital asset activity within ADGM.

UAE pushes for cryptocurrency clarity

The Dubai and Abu Dhabi frameworks try to provide enough clarity for crypto companies to gain a foothold in the Middle East.

“I think the main lure is how easy it is to get a license or regulatory approval to set up a crypto business there,” Adrian Tan, Matrix’s former chief risk officer, told Blockworks. Matrix becomes Abu Dhabi’s The first regulated virtual asset trading platform Almost a year ago.

“Personally, if I were to do business there, I would find the systems and rules difficult and confusing to navigate,” Tan said.

Tan, who has relocated to his hometown of Singapore after spending time in Abu Dhabi, said it is difficult for cryptocurrency businesses to find a foothold in the UAE because banks are regulated by various central banking institutions, each with different regulations.

Crypto-friendly jurisdictions do exist, including Singapore, although Binance is home to numerous prominent cryptocurrency exchanges Announced in December. But mostly they are exotic tax havens.Bahamas – where FTX Headquarters have recently been set up – the Seychelles and the Cayman Islands are also industry favorites.

These regions all appear to offer friendlier cryptocurrency regulation, making for smoother navigation. However, according to crypto industry players, part of the UAE’s appeal is that the region offers a prestigious attraction loosely based on a commitment to maintaining a clear working relationship with regulators.

When asked if Dubai will fall short of expectations in the next few years — similar to the many promises the Maltese state made to crypto businesses applying for licenses in 2018 before downgrading them to Regulatory Purgatory – Tan objected.

“I think it’s too early to call. They [Dubai] Their intentions have just been announced and VARA is still being built. Therefore, the regulations are not mature enough, which also means it is easier than in Singapore at the moment. This might be one of the attractions. “

San Francisco-based Kraken, which later became Abu Dhabi The first cryptocurrency exchange A local office and team was recently set up in order to obtain a Financial Services Permit (FSP) license from ADGM in April.

The decision was part of a three-year “considered choice” as it weighed various factors, including the region’s regulatory framework and Crypto adoption rateKraken’s MENA managing director Benjamin Ampen told Blockworks in an interview.

“The Middle East is one of the fastest growing crypto regions in the world. There is clear interest. There is commercial proof,” Ampen said.

Ampen points to UAE state-owned sovereign wealth fund exchange And its crypto efforts towards the end of 2021 are a testament to the growing demand for digital assets.Mubadala total assets under management By the end of last year, it was about $1 billion.

“We can’t control the behavior of a country or regulators, but building long-term relationships and years of trust helps,” Ampen said.

VARA is not easy

Binance and Crypto.com also told Blockworks that conversations with regulators in the region so far have been amicable and “incremental,” as they both try to adapt to the framework launched in February.

“[The UAE] Seeking to make business easier,” said a Crypto.com spokesperson. “Certainly, it’s an attractive place to live, except for the tough months of summer, you know, but the weather, climate, , the economy, it’s all pretty positive. “

Temporary license to operate in Dubai also granted OK, everything and Huobi. But the word “temporary” means they can’t provide any encryption services yet.

Tim Buyn, global government relations officer at OKX’s parent company, said that while VARA is accessible and open to questioning, it is not heavily regulated. “The due diligence process can easily have over 100 data items or documents that we need to turn over,” he said, explaining the steps in the process.

“It means regulators have enough confidence to proceed, and other regulators don’t use the framework. They just wait until they give you the full license,” added Buyn, who himself has held multiple regulatory roles for 16 years. OKX has about 10 employees in Dubai so far, but this number is expected to increase significantly.

VARA is currently drafting its full suite of digital asset regulations.These will make the Dubai World Trade Centre (DWTCA) the center For crypto companies, a cryptographic license is issued.

The center told Blockworks that full authorization is planned to begin by the end of this year. Therefore, any exchanges that have been provisionally approved are effectively stuck until then.

“The goal of the DWTCA is to issue licenses to a broad range of VAs (virtual assets) and VASPs (virtual asset service providers), including digital assets, products, operators and exchanges. The final list of licenses will be in the new VA and VASP Regulations will be announced when they are finalized,” a spokesman said.

UAE Has Wealthy Investors, Dubai Has No Crypto Taxes

UAE tops the list 10 richest countries In the world, an estimated $92,600 millionaire — Another lure for crypto companies.

David Maria, head of regulatory affairs at Bittrex, said Dubai’s wealthy customer base is attractive to companies looking for investors or people to use its services. “You have a customer base that is willing to spend and [crypto] assets, so that’s a good place to start,” Maria said.

Under the city’s policy, investors also full exemption Taxes on cryptocurrency profits.

But the question of how strict the UAE will be with securities laws remains.In America, a tug-of-war has been break out The issue between the Securities and Exchange Commission and the Commodity Futures Trading Commission over who will regulate crypto assets.

In Dubai, the issue is less complicated, with VARA being the only dedicated regulator overseeing virtual assets.it definition Virtual assets in the broadest sense – meaning cryptocurrencies, tokens and NFTs fall within its scope.

“Having a single regulatory agency and having clear oversight is a big benefit,” Maria said, adding that the agency still has a lot of work to do in terms of guidance.

Former PwC global cryptocurrency leader Henri Arslanian agrees that creating a crypto-professional regulator is a huge plus.Alslanians recently left his position at PwC The establishment of a digital asset fund called Nine Block Capital in Dubai has received provisional approval.

“This is important because cryptocurrency as an asset class is so unique that you want to deal with regulators who understand it,” Arslanian said, adding that unlike many other places, crypto firms feel vulnerable in Dubai. welcome.

Undoubtedly, with regulatory headwinds lingering elsewhere, the cryptocurrency industry is banking on those warm welcomes to transform into the freedoms they have sought for years, with few jurisdictions to explore.

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