Dubai: It’s the start of a brand new chapter for all cryptocurrency businesses in Dubai, as they operate as licensed – and fully regulated – entities by the emirate’s virtual assets regulator.
The transition means businesses engaged in crypto-assets need to show they have the credentials to conduct these operations. If things go wrong, their clients are in a relatively good position to be duly compensated. What Dubai is trying to avoid is the kind of blowouts crypto firms have had in markets where laws were inadequate or are still being framed.
Paying for property to hotel bills
In real terms, wherever cryptocurrencies are being used – say, buying or selling Bitcoins or used to pay off on a property investment or even a hotel bill – will require the businesses involved to have all the licenses in place to do so.
The main point to note is that any traditional business - a hotel operator or even a rental car dealer - accepting or transacting in virtual assets for its business purpose, must be duly registered with the authorities per the licensing criteria," said Arun John, Chief Market Analyst at Dubai-based Century Financial.
From August 31, entities in Dubai that qualify for the ‘Full Market Product’ license can commence their transition to a VARA (Virtual Asset Regulatory Authority) regime.
First, these businesses had to first clear another regulatory deadline – respond to an ‘Initial Disclosure Questionnaire’ issued by VARA by April 30. Failure to do so had consequences.
Reportedly, BitOasis (a crypto trading platform) failed to meet the regulator's conditions and did not submit certain essential documents in the time allotted.
“This resulted in suspension of BitOasis's operational license.”
As wakeup calls go, this one sure delivered its message loud. And that VARA meant business when it comes to compliance measures, industry sources add.
Quick on the uptake on virtual assets
The UAE has been quick with creating a regulatory framework for cryptocurrencies such as Bitcoin. The authorities see a definite – and defined – space for virtual assets in the wider financial services landscape. In contrast, some of the biggest global jurisdictions are still way off from having even a modicum of regulations related to crypto.
While ADGM oversees the virtual asset space in Abu Dhabi, VARA’s coverage encompasses Dubai. An entity registered under the Dubai World Trade Centre Authority, it is responsible for regulating and supervising virtual assets and virtual asset-related activities in all free zones in Dubai, except at DIFC.
The end game? Establish the UAE as one of the world’s focal points for crypto-facing businesses. At a time when the virtual assets landscape is going through a lot of churn, related to jurisdictions, operational rights, licensing, and more.
A rush of ‘virtual’ businesses
“We experienced a 33 per cent increase in the number of inquiries for crypto and virtual asset businesses since January,” said Zana Musa, Director of Operations at Sovereign Corporate Services. “This was anticipated as a result of the crypto events the UAE has been hosting in recent months as well as establishing the world's first independent regulator for the virtual assets sector.
“We have gained experience in assisting virtual asset service providers (VASPs) to register their local entities in the UAE and fulfilling the regulatory requirements for licensing. The inquiries we are receiving have come from the UK, Europe, South Africa and the wider region.
The market has seen growing interest from local entrepreneurs and international investors looking to leverage the favourable regulatory environment and the UAE's fintech landscape.
What crypto businesses had to do for VARA rights
The Initial Approval Application involved the following:
- Submission of the Initial Disclosure Questionnaire.
- Additional documents, including business plan, Ultimate Beneficial Owner details, plus senior management details.
- After initial approval, the applicant firm had to complete an operation setup, including renting office space, employee boarding, and other required operational aspects.
“Once Initial approval was received, the firm must apply for a VASP license,” said John. “This process involves submitting meetings, interviews, and other necessary documents to substantiate the applicant's business aspect claim.”
Four primary rulebooks were prescribed to comply with VASP license requirements - covering the main company level, compliance and risk management, IT and market conduct levels.
The final VASP license is issued subject to payment of the remaining and first year supervision fees.
The firm needs to consider the nature of its business and accordingly comply with the respective rulebook requirements. Currently, seven broad categories are there – Advisory Services, Broker Dealer Services, Custody Services, Exchange Services, Lending and Borrowing, Virtual Asset Management and Investment Services and VA Transfer and Settlement.