Laws governing Cryptocurrency in the GCC Region

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Judith Mariya, TLR

Published on July 20, 2023, 11:03:36

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Laws governing Cryptocurrency in the GCC Region

Cryptocurrencies have gained significant popularity and attention worldwide, and their regulation has become a subject of interest and importance. In GCC, the legal framework surrounding cryptocurrencies is crucial for fostering a secure and transparent environment for participants in the digital asset space.

Bahrain:

The Central Bank of Bahrain (CBB) introduced regulations in 2019, known as the "Crypto-Asset Module," for crypto exchanges. These regulations focus on compliance, security, and customer protection. Companies in Bahrain must get a licence and follow anti-money laundering regulations to run a cryptocurrency exchange. Bahrain offers a supportive regulatory environment and access to the wider GCC market, making it attractive for crypto exchanges. The country's crypto market is growing, and collaboration between the government, regulators, and industry stakeholders is expected to further enhance it.

Kuwait:

Kuwait takes a cautious and restrictive approach to cryptocurrencies. The Ministry of Finance does not recognise them for official commercial transactions, and the Central Bank of Kuwait prohibits the banking sector from trading in cryptocurrencies. The Central Bank has urged consumer education on the risks associated with cryptocurrencies. Kuwait plans to develop a government-controlled local digital currency. In 2019, regulations were introduced for cryptocurrency exchanges, emphasising anti-money laundering measures and risk management. The Central Bank clarified that crypto assets are not considered genuine currencies and highlighted the importance of distinguishing them from official government-issued currencies.

Oman :

Oman's Central Bank has warned about the risks of investing in digital assets, but around 65,000 residents still hold cryptocurrencies. To regulate this growing industry, the Capital Market Authority (CMA) is working on a comprehensive regulatory framework. The CMA aims to oversee virtual asset activities, introduce licensing for service providers, and mitigate associated risks. These regulations align with Oman's Vision 2040 initiative and aim to provide a secure market environment while attracting global players. However, the Central Bank maintains a cautious stance, and no entity is currently licensed to trade cryptocurrencies in Oman. Despite the warnings, a significant number of Omanis continue to invest in cryptocurrencies.

Qatar:

The Qatar Financial Centre Regulatory Authority (QFCRA) implemented a ban on all virtual asset services within the Qatar Financial Centre (QFC), except for digital asset services related to token securities. The ban aims to prevent terrorism financing and money laundering. The central bank of Qatar has also declared trading Bitcoin illegal due to its volatility, potential for financial crimes, and lack of underlying assets. The bans are driven by the goal of safeguarding the financial system and ensuring economic stability.

Saudi Arabia:

Cryptocurrencies in Saudi Arabia are in a legal grey area. The government banned banks from processing crypto transactions, deeming trading in cryptocurrencies as illegal and risky. However, there are no specific legal penalties for individuals engaging in digital asset trading. Non-fungible tokens (NFTs) have gained popularity as they are not currently classified as cryptocurrencies and are not subject to the blanket crypto ban. Saudi Arabia may consider establishing regulations in the future, especially considering the interest of its young population in digital technologies.

United Arab Emirates:

The UAE has become a leading hub for blockchain innovation and cryptocurrency activities. The UAE Government implemented Resolution No. 111 of 2022 on Dec 12, 2022, to regulate virtual assets and service providers across the Emirates. It expands on Dubai's Virtual Assets Law and establishes the Dubai Virtual Asset Regulatory Authority (VARA) as the industry's regulatory body. The resolution applies to companies in the mainland and designated free trade zones, except for DIFC and ADGM, which have their regulations. VASPs, including crypto companies, must obtain a license from the Securities and Commodities Authority or local regulatory bodies like VARA. The DMCC Crypto Centre in Dubai provides blockchain services, metaverse support, crypto trading, mining, advisory, exchange, custody, lending, payments, management, and NFT assistance.

The government has embraced blockchain technology and aims to migrate government transactions onto blockchain platforms. The UAE has crypto-friendly policies, with numerous cryptocurrency exchanges operating in the country. Dubai has established the DMCC Crypto Centre, providing support for crypto and blockchain start-ups. The UAE's progressive approach has attracted companies, including Ripple, to establish their headquarters in the country. The Abu Dhabi Global Market has also introduced regulations governing virtual asset activities. Overall, the UAE's crypto-friendly environment has positioned it as a prominent player in the global crypto landscape.

AML and KYC

The Gulf Cooperation Council (GCC) region is cautiously embracing virtual activities associated with cryptocurrencies, but there is a growing emphasis on implementing Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Governmental entities and banks in the region are enforcing these regulations to prevent the illicit use of virtual assets for activities such as money laundering and terrorism financing. The United Arab Emirates (UAE) has already implemented several AML regulations recommended by the Financial Action Task Force (FATF), which is a global watchdog setting AML standards and of which the GCC is a member. These regulations aim to prevent individuals from converting suspiciously obtained cryptocurrencies into real fiat currency.

The Saudi Arabian Monetary Authority (SAMA) has established AML and KYC regulations for businesses engaged in cryptocurrency trading in Saudi Arabia. These requirements mandate the implementation of policies, procedures, and controls to ensure compliance with AML and KYC regulations.

Similarly, in Qatar, the Qatar Financial Centre Regulatory Authority (QFCRA) has issued regulations specifically for cryptocurrency exchanges and related services. These regulations encompass licensing requirements as well as AML and KYC obligations.

Overall, the GCC countries are recognising the importance of AML and KYC regulations in the realm of virtual assets and are actively working towards implementing and enforcing these measures to deter illicit activities and promote a safe and transparent environment for cryptocurrency-related transactions.

The GCC region demonstrates a diverse landscape of cryptocurrency regulations. While some countries embrace crypto asset exchanges and blockchain technology, others take a cautious approach or impose bans on certain virtual asset services. There is an increasing focus on implementing AML and KYC regulations to prevent illicit activities. The UAE stands out as a leader in embracing cryptocurrencies and blockchain technology, actively fostering a crypto-friendly environment. As the global cryptocurrency ecosystem evolves, it is expected that GCC countries will continue to refine their regulatory frameworks to ensure a balance between innovation, security, and compliance.

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