Dubai World Trade Centre established the first Dubai Crypto zone

An initiative towards a stable regulatory ecosystem for cryptocurrencies and other Virtual Assets companies

The United Arab Emirates (UAE) has been at the forefront of conceptualizing and implementing a regulatory framework for licensing and facilitating blockchain and cryptocurrency activities and operations.

The legal framework

Financial free zones in the UAE such as Abu Dhabi Global Markets (ADGM) and Dubai International Financial Centre (مركز دبي المالي العالمي) have been leading technical innovation in the financial sector. The Dubai Financial Services Authority (DFSA) in DIFC has issued an extensive framework for regulating security tokens. The Financial Services Regulatory Authority (FSRA), the financial regulator of ADGM is the first regulatory organization in the UAE to establish detailed rules and regulations on crypto assets-related activity. In 2018, FSRA introduced regulated activities for the operation of crypto assets in ADGM. It permitted companies to establish crypto-asset exchanges, function as depositaries, brokers of crypto assets, and engage in crypto investment activities within ADGM.

Prior to 2018, there was no specific regulation governing crypto activities in other parts of the UAE. Securities and Commodities Authority (SCA) is an independent entity established pursuant to Federal Decree No.4 of 2000 to supervise and regulate the financial markets. Their purpose is to provide investment possibilities, safeguard investors’ rights, and enable the provision of capital to businesses, thereby promoting financial and economic stability and supporting the national economy’s interests. One of the key indicators of the future of the crypto-asset industry in the UAE is the ongoing attempt of the SCA in formulating the legal framework for cryptocurrencies. In October 2019, the SCA published the draft crypto asset regulation for review and comments of the stakeholders. A year later in December 2020, the Chairman of the Authority’s Board of Directors’ Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation (the Regulation) was published.

Dubai World Trade Centre, a crypto zone and regulator for cryptocurrencies

In Dubai, bitcoin and blockchain activity has increased. Recent months have seen a significant increase in the UAE’s cryptocurrency market acceptance rate, as global blockchain companies and asset management firms have built operations in the region. While Dubai and the UAE continue their transition to an innovative and digital economy, the DWTCA has stated its commitment to blockchain and cryptocurrencies. Following from SCA memorandum of understanding with Dubai Multi Commodities Centre (DMCC), cryptocurrency adoption has further accelerated in September 2021, following the signing of an agreement between the SCA and the Dubai World Trade Center Authority (DWTCA) to regulate and facilitate crypto and blockchain transactions. This announcement comes in line with Dubai’s efforts to develop the virtual assets and markets, including creating a framework for digital innovative financial products, embracing new trends relying on blockchain technology, such as non-fungible tokens (NFT) and cryptocurrencies.

Virtual resource compliance and policy execution

The rapid development of encrypted assets and their numerous forms, as well as the related investment and anti-money laundering threats, will require ongoing oversight by various regulatory agencies. Provision, issuance, trading, and listing of cryptocurrencies as well as licensing related financial operations can be undertaken in the DWTC free zone under the regulatory oversight of SCA. DWTC aims to establish a new world-class regulatory framework for virtual resource compliance and policy execution, which will be critical in fostering and increasing cross-border transactions and ensuring safe market entry and growth for this sector in Dubai. The DWTC will also collaborate with the private sector and other stakeholders in Dubai to foster an attractive environment for the sector.

خاتمة

According to financial analysts, as regulators support the adoption of blockchain-based technologies, Dubai is well-positioned to capitalize on the Middle East’s developing cryptocurrency sector. By focusing on the importance of crypto assets and blockchain technology, UAE has fostered technical innovation and the development of a regulatory framework in the country. The regulations and other SCA initiatives outlined above are key steps toward establishing a stable ecosystem for cryptocurrency companies. We expect further developments in this sector’s legal and regulatory structure.

Should you have further questions, please contact us:

مانيش نارايان Partner +971 55 414 7028 manish@galadarilaw.com

Aqsa Adil Paralegal +971 55 414 7026 jaqsa@galadarilaw.com