The Emirate of Dubai has been introducing various innovations for entrepreneurs and investors of blockchain technology, rising to be a regional and international hub in the industry. It has already spent several years egging the sector participants to hold its position internationally and made a lot of promises in this regard. Such innovations and incentives provided by Dubai, and a recently enacted law setting forth a general framework of how Dubai will treat virtual assets, may make Dubai a great center to invest in, eventually. This article will summarize the previous promises made and then analyze what the recent law introduces for the sector players in Dubai.

The Emirate of Dubai has been introducing various innovations for entrepreneurs and investors of blockchain technology, rising to be a regional and international hub in the industry. It has already spent several years egging the sector participants to hold its position internationally and made a lot of promises in this regard. Such innovations and incentives provided by Dubai, and a recently enacted law setting forth a general framework of how Dubai will treat virtual assets, may make Dubai a great center to invest in, eventually. This article will summarize the previous promises made and then analyze what the recent law introduces for the sector players in Dubai.

Prior Promises
In the last few years, there were some announcements made by the officials for a consensus between the Emirate’s federal regulators regarding securities.

Subsequently, the Securities and Commodities Authority (the “SCA”) and Dubai World Trade Centre Authority (the “DWTCA”) signed a memorandum of understanding.(1) The announcement followed that Dubai World Trade Centre (the “DWTC”) intends to be the regulator for all types of virtual assets. Such statements and plans made Dubai an investment hub in crypto. They adopted a comprehensive law for activities subject to crypto-related assets such as offering, listing, issuing, providing services, and trading.(2)

Law on the Regulation of Virtual Assets
Recently, the Vice President and Prime Minister of the United Arab Emirates and the Ruler of the Emirate of Dubai, H.H. Sheikh Mohammed bin Rashid Al Maktoum has, announced on his Twitter account (3) that the Law No. 4 of 2022 on the Regulation of Virtual Assets (the “Virtual Assets Law” or the “VAL”) is enacted by stating “Today, through the virtual assets law, we seek to participate in the design of this new and rapidly growing global sector. Our step is a leap towards the future aimed at developing this sector and protecting all investors in it.” The VAL came into effect on 11 March 2022, published in the Official Gazette. (4)

The VAL does not cover all activities related to virtual assets for the whole federation. It only regulates authorization of the activities related to virtual assets in the Emirate of Dubai, including special development zones and free zones, but except for the Dubai International Finance Centre (the “DIFC”), which is a special zone under the jurisdiction of Dubai Financial Services Authority (the “DFSA”). The DFSA is currently preparing its regulation for cryptocurrencies, and the SCA is working on regulation, which is close to being launched. (5)

The VAL aims to adopt a framework that sets boundaries and rules for the sector participants to overwatch and protect them.

The Scope of “Virtual Assets”
Since defining the “virtual assets” is a technical matter, having a precise term is essential for following a correct legal path and guiding law enforcement authorities efficiently in case of any administrative or judicial dispute.

The VAL defines the scope of virtual assets as “digital representation of value which can be traded, transferred or used as an exchange or payment tool or for investment purposes, including virtual tokens or any digital representation of any other value as determined by VARA (as explained below).”(6)The VAL also defines the virtual tokens as “digital representation of a group of rights which can be issued and traded digitally, through a virtual asset platform which is operated by a virtual asset provider licenced by VARA.” (7)

Supervisory Authority

One of the most significant changes brought by the VAL is establishing an independent authority called Virtual Asset Regulation Authority (the “VARA”) to monitor compliance with the VAL and grant licenses for virtual asset activities.
The VARA will oversee all activities related to virtual assets and enact regulations, classifying and identifying virtual assets across the territory. The VARA is mandated to authorize virtual asset service providers and monitor trading activities to restrain price manipulation and set high standards for protecting the investors’ data. The VARA has been established as a separate legal entity with financial autonomy affiliated with the DWTCA. (8)

The VAL sets forth several activities subject to license requirements to be provided by the VARA. Any virtual asset service provider, or any person who is engaged with virtual assets, such as operating and managing exchange services, transfer services, custody, and management services, services include offering and trading of virtual assets, services related to the virtual asset portfolio, is obligated to have a legal presence in Dubai, obtain a trade license from the commercial authority and get a license from the VARA. (9) Until now, Binance and FTX obtained a permit from the VARA to continue their operations in Dubai.

The VARA is authorized to impose fines on any sector participant who violates the VAL or any regulation to be enacted by the VARA, adopt any measures such as suspending or canceling permits, cooperate with commercial licensing authorities to declare the relevant licenses.

The VARA is also authorized to ensure data protection, anti-money laundering, raise public awareness about virtual assets risks, and coordinate with the Central Bank and the SCA. (10)

What’s Next?

Under the government’s forward-leaning attitude towards digital assets, Dubai’s reputation has been increasing day by day in the eyes of crypto players. Although many details have not yet been regulated, the VAL grants the VARA the power to adopt regulations. Therefore, further legislation and regulations are expected soon, which would provide more details such as the licensing procedures (e.g., license periods, fees) and any virtual assets exempt from the VAL. (11) Considering Dubai’s policies and incentives, it is predicted that the new legislation will boost the demand for operating in Dubai in the blockchain technology industry.

As Vircon Legal, we’ll keep you updated regarding the crypto-related news in Dubai and other developments about virtual assets.

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1. https://www.dwtc.com/en/press/securities-and-commodities-authority-signs-agreement-with-dubai-world-trade-centre-authority-to-support-trading-of-crypto-a-2021, 22 September 2021 (Accessed on: 26.03.2022).
2. Rafiq Abdo, https://www.mondaq.com/fin-tech/1173766/issues-a-first-of-its-kind-law-on-regulating-virtual-assets, 18 March 2022 (Accessed on: 26.03.2022).
3. https://twitter.com/HHShkMohd/status/1501566703322513408?s=20&t=_gWQi_rtcaq6CeNN3G1yTQ
4. https://u.ae/en/about-the-uae/digital-uae/regulation-of-digital-properties, 21 March 2022, (Accessed on: 26.03.2022).
5. Kevin Helms: Dubai Approves First Law to Regulate Digital Assets, Establishes Regulator to Oversee Crypto Sector, 10 March 2022, accessed via https://news.bitcoin.com/dubai-approves-first-law-to-regulate-crypto-assets-establishes-regulator-to-oversee-crypto-sector/, (Accessed on: 26.03.2022).
6.  Rafiq Abdo, https://www.mondaq.com/fin-tech/1173766/issues-a-first-of-its-kind-law-on-regulating-virtual-assets, 18 March 2022, (Accessed on: 26.03.2022).
7.  https://www.tamimi.com/news/dubai-issues-first-law-regulating-virtual-assets/, 10 March 2022, (Accessed on: 26.03.2022).
8. https://timesofindia.indiatimes.com/business/cryptocurrency/blockchain/dubai-has-adopted-its-first-law-to-regulate-the-crypto-sector/articleshow/90195143.cms, 14 March 2022, (Accessed on: 26.03.2022).
9. https://www.entrepreneur.com/article/422150 March 14,2022, (Accessed on: 26.03.2022).
10. Kaaru Steve, https://coingeek.com/dubai-sets-up-watchdog-as-part-of-landmark-digital-assets-law/, 16 March 2022 (Accessed on: 26.03.2022).
11. https://www.tamimi.com/news/dubai-issues-first-law-regulating-virtual-assets/, 10 March 2022 (Accessed on: 26.03.2022).