Dubai issued the Regulation of Virtual Assets law and established the Dubai Virtual Assets Regulatory Authority in March, aiming to establish a legal framework for businesses in the virtual assets space.
Virtual assets are digital representations of value which can be traded, transferred or used as a form of payment. These include cryptocurrencies and non-fungible tokens (NFTs).
Al Arabiya English sat down with Nadim Bardawil, Partner at Dubai-based law firm BSA Ahmad Bin Hezeem and Associates LLP, to clarify what the new law entails and what it will mean for businesses operating in this space.
“It lays the foundation for the creation of a new regulator in the Emirate of Dubai, the Virtual Assets Regulatory Authority or VARA for short,” Bardawil said.
“The Virtual Assets Law acts as a foundation for VARA to operate within the Emirate of Dubai and specifically within the Dubai World Trade Center. Its objective will be to regulate companies providing services linked to virtual assets within the Dubai World Trade Center as well as to promote the DWTC as a hub for companies operating within the virtual assets industry,” he added.
Since the new law was issued, VARA has not yet specified exactly how it plans to regulate virtual assets. Bardawil said that he expects the first set of regulations to be issued during the second quarter of the year.
“Dubai set its sights on prioritizing the usage of blockchain and other distributed ledger technologies more than six years ago; a good precursor for the eventual creation of VARA.”
Why is regulation so important?
Over the past few years, traditional finance and the virtual asset economy have become increasingly intertwined, making it more important than ever to regulate virtual assets.
“A large majority of virtual assets rely on decentralized structures which means that they are not created to have a centralized regulator,” Bardawil explained.
This enables market users to buy and sell virtual assets without any oversight of a central bank or financial regulator.
“As more and more institutional investors begin to invest in virtual assets, the market is looking for certain elements of financial regulation to be applied to virtual assets which should allow for more entrants as well as reduce the risks of financial crimes being committed.”
There has been a rise in crypto crime recently. In a previous interview with Al Arabiya English, crypto research firm Chainalysis said that such crime increased the most throughout 2021, with an 82 percent rise in scamming revenues amounting to $7.8 billion worth of cryptocurrency.
In addition to this, NFT fraud, wash trading and money laundering have surged exponentially in the virtual assets space recently. Chainalysis found that NFT scammers alone made more than $8.8 million in illicit profits.
What does the new law mean for UAE companies?
With these issues in mind, the need for regulation is more important than ever.
“We anticipate that more start-ups targeting the virtual asset space will begin to choose Dubai as either a launchpad for their operations or as a key market,” he said.
“The UAE as a whole has already put itself squarely in the list of jurisdictions that is willing to regulate nascent technologies such as those utilized in the creation and buying and selling of virtual assets and this development continues to bolster this strategy.”
“We anticipate Dubai continuing to grow its volume of crypto related businesses as well as businesses targeting everything Web3.0 based.”
Crypto exchange Kraken gets license to operate in Abu DhabiKraken, one of the world’s biggest cryptocurrency exchanges, received a license to operate its virtual asset trading platform in Abu Dhabi and has set ... Gulf
Binance says limiting services for Russians with more than $10,895 of crypto assetsCryptocurrency platform Binance says it is limiting services for Russian nationals with digital assets exceeding the value of $10,895 (10,000 ... World News
Digital-asset gateway Fasset betting on crypto appeal in Islamic world raises fundsFasset, a digital-asset gateway, is planning a major expansion in some areas of the Islamic world, as it seeks to boost the adoption of ... Technology