The UAE is emerging as a leading destination for crypto growth, attracting institutional investors and financial giants.  Crypto giants like Crypto.com, Coinbase, Paxos, Laser Digital, and Circle have established a presence in the country.

The UAE offers a welcoming environment for businesses and investors, which is why the country boasts six regulators issuing crypto licences, providing a clear regulatory framework for operating companies. Dubai Virtual Asset Regulatory Authority and the Abu Dhabi Global Market have introduced regulations to facilitate the operation of decentralised crypto companies and the issuance of digital tokens.

Furthermore, the UAE Central Bank has eased the process for legitimate crypto businesses to open bank accounts, addressing a significant challenge faced by crypto multinationals.

Locally, crypto adoption is growing, with customers using cryptocurrencies for everyday transactions such as dining at restaurants or purchasing groceries through apps like Talabat. Although the business climate seems promising, companies might still encounter obstacles due to stricter regulations and rules.

Let's dive into the details of cryptocurrency regulations in the UAE to make it easier for you to understand.

Key Regulatory Measures

In November 2020, the Securities and Commodities Authority (SCA) issued Decision No. 23 of 2020, which outlines regulations for crypto asset activities. These regulations cover the listing, offering, trading, and issuing of digital assets within the onshore UAE.

The law categorises virtual assets and sets requirements for marketplaces, custodian services, exchanges and crowdfunding platforms, along with related financial services.
The Securities and Commodities Authority (SCA) is the primary regulatory body overseeing this domain, playing a pivotal role in formulating and enforcing regulations.

Recognising the importance of investor protection and market integrity, the SCA has classified certain cryptocurrencies as securities, subjecting them to existing securities laws and regulations.

Providers of crypto assets must be licensed by the SCA and comply with AML/CFT, data protection, and cybersecurity laws. They are only permitted to operate in onshore UAE, Dubai International Financial Centre (DIFC), or Abu Dhabi Global Market (ADGM).

To operate within the UAE, cryptocurrency enterprises must secure a licence from the SCA and comply with activities such as exchanges and wallet services. Moreover, stringent Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols are mandatory to curb illicit activities and ensure robust customer verification processes.

The Role of the Financial Services Regulatory Authority (FSRA)

While not exclusively tailored to cryptocurrencies, the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has played an important role in crafting a regulatory framework for various fintech endeavors, including cryptocurrencies.

Regulating ICOs and Token Offerings

The UAE imposes regulations on Initial Coin Offerings (ICOs) and token offerings, necessitating approval from the SCA and adherence to securities regulations.

Cryptocurrency AML Regulations in the UAE

In a recent case, a gang in Dubai was convicted for orchestrating a Bitcoin scam worth Dh10 million. The group had targeted over 180 victims across the UAE through a social media advertisement campaign. Each member of the gang was fined over Dh321,000 for illegally obtaining money and conducting virtual assets without proper licensing.

Victims reported being duped out of Dh321,000 after the gang promised to double their investments through a crypto wallet scheme. The UAE has taken proactive steps to regulate money laundering activities in the cryptocurrency market. In November 2020, the Securities and Commodities Authority (SCA) issued Decision No. 23 of 2020, which outlines regulations for crypto asset activities.

These regulations cover the listing, offering, trading, and issuing of digital assets within the onshore UAE. The law categorises virtual assets and sets requirements for marketplaces, ICOs, custodian services, exchanges, and crowdfunding platforms, along with related financial services.

Despite the UAE government's efforts to protect crypto assets from money laundering, criminals continue to exploit technology for illegal activities at a faster rate than technological advancements in the crypto space.

However, UAE regulators are making progress in implementing protective laws, emphasising the importance of identifying red flags promptly to foster growth and innovation in the crypto space, which indicates promising prospects for the future economy.

(The writer is a legal associate at Dubai-based NYK Law Firm)

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