Dubai has adopted the first law of its kind in the emirate that regulates virtual assets, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, said on Wednesday.
The Dubai Virtual Asset Regulation Law is aimed at creating an advanced legal framework to protect investors and provide international standards for virtual asset industry governance that will promote responsible business growth in the emirate, Sheikh Mohammed said in a statement.
“We established an independent authority to oversee the development of the best business environment in the world for the virtual assets in terms of regulation, licensing, governance and in line with local and global financial systems,” he said on Twitter.
“The future belongs to whoever designs it … and today, through the virtual assets law, we seek to participate in the design of this new and rapidly growing global sector.”
The UAE government is taking concrete steps to establish a strong digital economy and make use of the advantages provided by digital transformation.
The digital economy contributes about 4.3 per cent to the UAE's gross domestic product, which is equivalent to Dh100 billion ($27.2bn), government figures show.
The Dubai Virtual Asset Regulatory Authority (VARA), which will be established under the new law, will regulate the sector throughout the emirate, including special development zones and free zones, but excluding the Dubai International Financial Centre.
The authority, which will also be responsible for licensing, has legal and financial autonomy over the virtual asset sector and will be linked to the Dubai World Trade Centre Authority (DWTCA).
The establishment of VARA comes as a part of the strategy of the Dubai Securities and Exchange Higher Committee.
The new law and establishment of VARA will enhance the UAE and Dubai’s position in the virtual asset sector and attract leaders from around the world, said Helal Al Marri, director general of the DWTCA.
“The Dubai Virtual Asset Regulatory Authority will provide a full range of VA [virtual asset] services in co-ordination with the Central Bank of the UAE and the Securities and Commodities Authority,” Mr Al Marri said.
The significance of the new law reflects the growth of the virtual assets sector in the UAE and the region, said Loredana Matei, founder of FinTech media platform Finsight News.
“The law comes on the same day as the new US executive order that sets the framework for cryptocurrencies, which signals that both the UAE and the US are becoming the leaders in the global adoption and regulation of digital assets,” Ms Matei said.
Meanwhile, Dubai's initiative to establish the law in a relatively new field represents a welcome leap into the future that aims to develop and protect investors, developers, traders and marketers, said Devesh Mamtani, chief market strategist at Century Financial.
“The … initiative will allow virtual asset management, the exchange of cryptocurrencies and will prevent manipulation of virtual asset prices,” Mr Mamtani said.
The law, which will come into effect from the date of its publication in the Official Gazette, defines the tasks of VARA to regulate, supervise and control virtual asset services.
It also stipulates that the authority is mandated to organise and set the rules and controls that govern the conduct of virtual asset activities, including management services, clearing and settlement services, in addition to classifying and specifying types of virtual assets.
The law says that it is prohibited for any person in the emirate to engage in activities without authorisation from VARA, while any person wishing to practise virtual asset activities must establish a presence in Dubai to conduct business.
The law defines the activities, subject to VARA authorisation, as follows:
- Operating and managing virtual assets platforms services
- Exchange services between virtual assets and currencies, whether national or foreign
- Exchange services between one or more forms of virtual assets
- Virtual asset transfer services
- Virtual asset custody and management services
- Services related to the virtual asset portfolio
- Services related to the offering and trading of virtual tokens
The acts that constitute a breach of the provisions of the law and the fines imposed on a violator will be determined by the board of directors of the DWTC, Mr Al Marri said.
In addition to a fine, VARA will also have the authority to either suspend permits for a period of up to six months, cancel the permit, or co-ordinate with the competent commercial licensing authority in Dubai to cancel the commercial licence of violators, he added.
“Regulatory oversight is always good for the industry as it helps it evolve and innovate in a more accountable way and brings more safety to investors,” said Vasja Zupan, president of Matrix, an Abu Dhabi-regulated crypto exchange.
“Dubai’s own efforts in this respect add to the overall regulatory push that will eventually propel the industry into mainstream adoption.”
The new law and the establishment of VARA is a step ahead for Dubai and will have a positive effect on the emirate's property market, said Lewis Allsopp, chief executive of property agency Allsopp & Allsopp.
“The law and regulatory authority is welcomed by all current and future citizens and residents of the UAE,” Mr Allsopp said.
“The real estate and holiday home industries are sure to benefit greatly and I predict this will entice property investors who can buy property with their cryptocurrency.”