The emirate has recently unveiled an ambitious framework that aims to address a wide range of assets and activities, all geared toward attracting companies that are searching for regulatory clarity. This comprehensive plan signals a strong commitment from the emirate’s leadership to create a favourable business environment that caters to the needs of global corporations. The focus on regulatory transparency and consistency will undoubtedly position the emirate as an attractive destination for firms looking to establish a solid regional presence.
The cryptocurrency industry in Dubai is abuzz with excitement following the recent unveiling of the jurisdiction’s regulatory framework for digital assets. This development provides a much-needed licensing regime for both digital asset issuers and service providers, which has been long-awaited by industry players in the region. The regulatory clarity offered by the new framework is expected to spur growth in the local crypto industry and attract more investors to the emirate. This move is a testament to Dubai’s commitment to fostering innovation and its readiness to embrace emerging technologies.
The release of Dubai’s crypto regulatory framework comes on the heels of a tumultuous year for cryptocurrency markets in 2022, prompting regulators worldwide to ramp up efforts to establish and enforce safeguards for the industry.
Amid the heightened regulatory scrutiny, many companies and investors have been left feeling uncertain about the future of cryptocurrencies.
However, Dubai’s proactive approach to introducing a clear regulatory framework for digital assets signals its commitment to ensuring a safe and stable environment for crypto-related activities. This move is expected to instil confidence among industry players and investors and position Dubai as a leading hub for cryptocurrency innovation and investment in the region.
Dubai’s newly introduced regulatory framework for cryptocurrencies requires all entities looking to provide crypto-related services in the jurisdiction to obtain the necessary licenses and authorisations. The framework consists of four compulsory rulebooks for service providers, along with seven activity-based rulebooks that outline specific requirements depending on the type of service offered.
This innovative approach has garnered praise from industry experts, with Talal Tabbaa, the founder of regional crypto exchange CoinMENA, describing the framework as “elegantly designed”. The clear and comprehensive regulatory framework is expected to foster a secure and well-regulated environment for cryptocurrency-related activities in Dubai and encourage the growth of the local crypto industry.
Dubai, one of the seven emirates of the United Arab Emirates (UAE), has set its sights on becoming a leading global hub for cryptocurrency and blockchain-related activities. The emirate has been actively courting companies to establish a presence in the region long before introducing its regulatory framework for the sector. With the release of the new rules, Dubai has further solidified its commitment to promoting innovation and growth in the cryptocurrency industry. The emirate’s strategic location, coupled with its supportive regulatory environment, makes it an attractive destination for companies looking to tap into the region’s rapidly expanding crypto market. This move is expected to position Dubai as a key player in the global crypto ecosystem and reinforce its reputation as a business-friendly hub for emerging technologies.
Following the publication of Dubai’s new regulatory framework for cryptocurrencies, institutional crypto custody provider, Hex Trust, has become one of the first companies to receive an operational go-ahead from the emirate’s regulatory body, the Virtual Asset Regulatory Authority (VARA). The swift approval process is a testament to the effectiveness of Dubai’s new regulatory framework, which has been designed to foster innovation while ensuring that all activities related to digital assets are conducted safely and securely. The approval granted to Hex Trust highlights the emirate’s readiness to support businesses and embrace emerging technologies, cementing its reputation as a leading destination for companies looking to enter the rapidly growing crypto market in the region.
Mohamed Reda El Shiekh, head of compliance for Middle East and North Africa (MENA) at Hex Trust, expressed his satisfaction with introducing Dubai’s cryptocurrency licensing framework. “We were waiting for a licensing framework. We were waiting for somebody with interest to take the responsibility,” said El Shiekh, referring to the period before the establishment of the Virtual Asset Regulatory Authority (VARA) in 2022. With the introduction of the new regulatory framework, El Shiekh is optimistic about the future of the crypto industry in Dubai, citing the clarity and certainty that the regulations provide to companies looking to operate in the jurisdiction.
The regulatory framework is expected to attract more businesses to the emirate and cement its position as a global hub for emerging technologies.
While Dubai’s new regulatory framework for cryptocurrencies has been widely welcomed by industry participants, it remains a work in progress. The comprehensive nature of the rules means that there is scope for further development and refinement over time, as the authorities continue to monitor the evolving crypto landscape. However, the framework’s thoroughness could pose challenges for smaller companies looking to set up shop in the emirate, as compliance costs are likely to be a significant barrier to entry. Nonetheless, the regulatory clarity and certainty provided by the new rules are expected to attract more significant, more established players to the region, further strengthening Dubai’s position as a leading hub for cryptocurrency and blockchain-related activities. As the industry continues to mature and evolve, the regulatory framework will likely undergo further changes to ensure that it remains effective and relevant.
Although Talal Tabbaa, founder of regional crypto exchange CoinMENA, described Dubai’s licensing costs for crypto-related services as “peanuts” compared to other operating expenses like hiring workers or maintaining offices locally, he did acknowledge that some of the fees could be considered relatively expensive. While compliance costs are not typically the primary focus of crypto companies when considering market entry, they can still be a significant factor in the decision-making process.
Despite this, the regulatory clarity provided by Dubai’s new framework is expected to outweigh the costs, particularly for larger, more established players in the industry. As the emirate continues to establish itself as a leading hub for cryptocurrency and blockchain-related activities, regulatory fees and compliance costs will likely remain an important consideration for companies looking to operate in the jurisdiction.
Dubai’s new regulatory framework for cryptocurrency and blockchain-related activities includes a detailed fee schedule for companies seeking to offer exchange services or other crypto-related services in the jurisdiction. According to the framework, companies that wish to offer exchange services must pay a non-refundable application fee of 100,000 UAE dirham (US$27,200) and an annual supervision fee of double that amount.
However, payment of the application fee does not guarantee approval, and companies that wish to offer additional services like custody, lending, or payments must apply for additional licenses (at a 50% discount on application fees) and cover additional supervision fees. While some industry participants have noted that the fees may be relatively high, particularly for smaller companies, the regulatory certainty and clarity provided by the framework are expected to outweigh the costs for many larger players in the industry.
As Dubai continues to establish itself as a leading hub for crypto-related activities, the fees and licensing requirements will likely continue to evolve and adapt to the needs of the rapidly evolving industry.
By comparison, Abu Dhabi charges a lower application fee and annual supervision fee than Dubai. According to the Abu Dhabi Global Market (ADGM), the emirate’s financial centre, companies seeking to offer crypto-related services in Abu Dhabi must pay a $20,000 application fee and a $15,000 annual supervision fee. However, these fees can increase if the companies want to offer other types of assets, the ADGM said in a report. While the fees charged by Abu Dhabi may seem more reasonable to some, it remains to be seen how this will affect the emirate’s competitiveness in attracting crypto firms compared to Dubai, which has already established itself as a major hub for crypto and blockchain activities.
According to the Abu Dhabi Global Market (ADGM), any crypto exchange operating a spot or derivative market concerning virtual assets, including cryptocurrencies such as bitcoin and ether, must apply for a Multilateral Trading Facility (MTF) license, except for tokenised securities. As per the regulations, companies seeking to open MTFs in Abu Dhabi must pay a $125,000 application fee and a $60,000 annual supervision fee.
While the fees charged by the ADGM are higher than those charged by Dubai, it’s worth noting that the regulatory requirements also differ, with the ADGM mandating MTF licenses for crypto exchanges.
In Singapore, crypto exchanges that do not deal with fiat currencies typically apply for a Major Payment Institution license, which includes digital payment token services and requires an annual fee of 10,000 Singapore dollars ($7,500). On the other hand, New York’s BitLicense, which permits crypto-related activities, carries a $5,000 application fee. However, several companies have reported incurring costs of approximately $100,000 for legal and compliance fees and time allocation. These costs may vary depending on the jurisdiction and regulatory requirements in place.
According to a crypto lawyer in the UAE, Irina Heaver, while the fees set by Dubai’s new framework may be reasonable for larger companies, they may not be sustainable for startups. However, Heaver agrees that Dubai needed to regulate the crypto industry as it had become a breeding ground for scammers. The hope is that these regulations will help weed out bad actors. In January, UAE Minister for Digital Economy Omar bin Sultan Al Olama faced questions regarding why Dubai attracts disgraced crypto founders like Terra’s Do Kwon. Al Olama responded that VARA’s regulations would not be a “light touch.”
Not talking about the fees
Although the licensing fees in Dubai may be steep, the MENA region is a highly lucrative market that is worth the investment, according to Talal Tabbaa, the founder of regional crypto exchange CoinMENA. He emphasises that compliance costs are not typically a significant factor for crypto companies when evaluating market entry and that the fees in Dubai are manageable in the grand scheme of things. Furthermore, Mohammed AlKaff AlHashmi, co-founder of Dubai-based Islamic Coin, asserts that the high compliance costs will not pose a problem for “good projects” and may even help filter out “unwanted projects.” By instituting stringent regulations, Dubai is positioning itself as a serious player in the global crypto and blockchain landscape, with the potential to become a leading hub in the industry.
According to Irina Heaver, a crypto lawyer based in the UAE, the issue with Dubai’s regulations is not about the fees, as companies can raise the capital needed to cover the costs. Instead, she believes that the regulations may be too prescriptive, making it difficult for the Virtual Asset Regulatory Authority (VARA) to supervise compliance effectively. Heaver noted that while she supports the sentiment behind the regulations, they could be too restrictive in practice. The comprehensive nature of the regulations could create additional challenges for VARA, particularly when enforcing compliance requirements, she added.
Irina Heaver, a crypto lawyer based in the UAE, has raised concerns about Dubai’s regulations being too prescriptive and possibly hindering enforcement. She suggests that the requirement to obtain licenses for specific crypto activities may make it challenging for VARA’s supervisory personnel to ensure compliance with their regulations. In contrast, Heaver praises Switzerland’s principles-based regulations, which issue broad guidelines on how existing regulations apply to certain activities. Unlike Dubai, Switzerland does not have specific or separate rulebooks for crypto. Instead, its financial regulator issued guidelines in 2017 and 2018 on how banking, securities, and anti-money laundering rules apply to initial coin offerings (ICO), a popular crypto fundraising method.
Kristi Swartz, a partner at the law firm DLA Piper, which was the exclusive global legal advisor for VARA in creating the regulatory package, believes that while Dubai’s framework can be viewed as rules-based, it is not overly prescriptive.
Swartz stated that VARA’s regulatory package follows international best practices for cryptocurrency regulation, with clear and specific requirements for different types of crypto activities. The framework aims to promote a secure and transparent environment for digital assets while enabling innovation and growth in the crypto industry.
According to Kristi Swartz, a partner at the law firm DLA Piper, which was VARA’s exclusive global legal advisor in developing the regulatory framework, Dubai’s approach can be viewed as “slightly” rules-based, but it is not prescriptive. Swartz explained that flexibility is necessary for the fast-paced and rapidly evolving crypto industry. She also noted that DLA Piper had been monitoring Dubai’s regulation of the sector even before officially partnering with VARA and that the firm had worked on the regulatory package for nine months.
Alex Chehade, the general manager at Binance Dubai, acknowledges the different regulatory approaches taken by various jurisdictions and regulatory bodies towards digital assets. He emphasises that the regulations offered by VARA provide clarity and increased security for industry players, users, and investors in the Emirate. While Binance received a Minimal Viable Product (MVP) license from VARA in September 2022, Chehade says that the exchange is only partway through the four-stage approval process. The MVP license allows Binance to offer products and services only to qualified and/or institutional investors, with retail consumers strictly prohibited until VARA decides to approve a full operation license for companies eventually. Presently, no entity holds a full license from VARA.
Stable Crypto Coins and Blockchain – enabled assets
While Dubai’s new crypto regulation framework is comprehensive, some critics argue that it could benefit from more specificity. In particular, Irina Heaver, a UAE-based crypto lawyer, noted that the regulations do not specifically address payments-focused cryptocurrencies, such as stablecoins, which are pegged to the value of other assets. This contrasts with jurisdictions like the UK and the European Union, which have focused more heavily on stablecoin regulation. For instance, the EU recently introduced its cross-jurisdictional crypto regulation framework known as MiCA, which includes specific provisions for stablecoins.
VARA’s regulations seem to address stablecoins to some extent, specifically in the rulebook for companies. In this rulebook, VARA outlines the liquid asset reserve requirements for firms, including virtual assets that are linked to the value of sovereign currencies. However, this is not explicitly addressed in the rulebook for token issuance.
According to Kristi Swartz, a partner at the law firm DLA Piper, the focus of VARA’s rulebook for issuance is primarily on tokenised assets, including non-fungible tokens (NFTs). However, the company rulebook addresses stablecoins to a certain extent, outlining liquid asset reserve requirements for firms that include virtual assets linked to the value of sovereign currencies. This reserve requirement aligns with those of other jurisdictions, such as Hong Kong and Israel, which are planning stablecoin regulations. According to Winson Lau, fintech and digital asset lawyer at DLA Piper, who worked on the regulatory regime with Swartz, VARA receives daily inquiries on token issuance.
The rulebook for issuance covers tokenised assets and guides industry participants on registering and obtaining regulatory approval for their projects. Winson Lau, fintech and digital asset lawyer at DLA Piper, who worked on the regulatory regime with Kristi Swartz, said that VARA receives daily inquiries on token issuance, ranging from plain-vanilla NFTs to complex projects such as tokenisation of real estate or financial instruments. According to Lau, the issuance rulebook focuses on what should be included in the white paper that needs to be registered with VARA and publicly disclosed.
Do coins have privacy?
The ban on anonymity-enhanced cryptocurrencies has sparked controversy, with some experts questioning its impact on privacy. Kristin Smith, executive director of the Blockchain Association, a trade group representing blockchain and cryptocurrency companies, said, “It’s concerning when any government seeks to limit the ability of people to use privacy-enhancing technology, which is why we have been opposed to similar efforts in the United States and Europe.” She added that anonymity-enhanced cryptocurrencies could be used for legitimate purposes, such as protecting financial privacy, and that policymakers should instead focus on targeting illicit uses of the technology.