The Emirate of Dubai in the United Arab Emirates (UAE) is rapidly developing into as being one of the global centers for setting up of operations and dealing in virtual assets and cryptocurrencies. There are new startups in this digital space which encourage innovation in technology and digital assets. With such interests developing comes the challenge of formulating and promulgating regulations so that any scams, frauds, and/or illegitimate businesses can be marginalized. The Government of Dubai, UAE has taken this challenge head-on and has come up with new law i.e., Law No. 4 of 2022 which primarily provides for regulation/s dealing in virtual assets. The said law was issued on February 28, 2022, by the Vice President and Prime Minister of UAE and Ruler of Dubai, H.H. Shaikh Mohammed Bin Rashid Al Maktoum.
The primary objective/s of the said legislation is to promote the Emirate of Dubai as the regional and international hub for virtual assets and thus leading to developing its digital economy. Further, it is also to provide statutory structure to safeguard the investor’s interests which, in turn, is likely to lead to growth of business opportunities and innovation in the digital assets space. Under the said regulation/s, the Dubai Government has specifically set up Virtual Assets Regulatory Authority (VARA) which essentially governs, oversees the operations of the Virtual Asset Platforms etc., and aims to achieve its set objectives.
Some of the highlights of the said regulation/s are enumerated below:
1. The law applies to the territory of Dubai including all special trade zones and free zones in Dubai. However, it is not applicable to the Dubai International Financial Centre (DIFC) as it is an independent jurisdiction with its own financial regulations.
2. There is a clear definition, as given below, provided for the terms, Virtual Asset, Virtual Tokens, Virtual Asset Platform, Virtual Asset Wallet etc.
a. Virtual Asset is defined as a “digital representation of value which can be digitally traded or transferred or used as an exchange or payment tool or for investment purposes”.
b. “Virtual Token” is a “digital representation of a group of rights which can be issued and traded digitally through a virtual asset platform”.
c. “Virtual Asset Platform” is a “centralized or decentralized digital platform which is managed by a Virtual Asset Service Provider; on which Virtual Assets are sold, purchased, traded, offered, issued and safekept: and through which the clearing and settlement of traded Virtual Assets are being made, using the Distributed ledger Technology”.
3. Article 15 provides for conducting of activity whereby any person who is to engage in carrying on virtual assets business should seek the required approvals/permits from VARA.
4. Further, Article 16 provides for those activities which require approval/s and these have been classified as follows:
a. Operation and management of Virtual Asset Platform.
b. Services relating to exchange of Virtual Assets to national and foreign currencies.
c. Services relating to exchange of one or more forms of virtual assets.
d. Services relating to Virtual Asset transfer.
e. Operation and management of Virtual Asset Wallet.
f. Offering and trading in Virtual Tokens.
5. VARA, on its part, and as provided for under Article 6, is expected to coordinate with the Central Bank of the UAE on all matters related to the protection and stability of the financial system not only in Dubai but the entire UAE. This means that Central Bank would also need to give access to crypto assets and companies dealing in it to its banking system. VARA is also to prescribe, in coordination with the Dubai Digital Authority (DDA), the procedures for protection of the Personal Data of Beneficiaries which again will have to be within the framework of federal law on personal date protection i.e., Federal Decree-Law No. (45) of 2021.
6. It is also, inter alia, obligated upon VARA to establish, solely or in partnership with others, companies and corporations within or outside of the Dubai World Trade Centre for the purpose of achieving the objectives of VARA and ensuring performance of its functions under this law. This implies that VARA would need to have interactions with other government agencies/authorities to look into how to regulate exiting federal laws governing financial transactions.
7. For assignment or transfer of permit granted to any entity/person by VARA to conduct all or any of the activities outlined in #4 above, approval is required to be sought from the said authority.
8. The law also provides for redressal of the grievances. These would require to be submitted in writing to the Director General (DG) within 30 days of being notified of any decision, action or measure taken affecting the person who was granted the permit by VARA to conduct business activities. Any decision passed by the Committee constituted by DG for the said purpose on the grievances shall be final.
Overall, the promulgation of the virtual assets law is a very positive and exciting development for Dubai. The objective is very clear which is to make Dubai as the regional hub for any virtual assets activity including cryptocurrencies and also have it as such recognized by the international community. In our view, it will certainly give impetus to the future investments in the industry by reposing faith and trust in it, thus leading to innovation and its adoption in the region.
If you have any questions about this or any other query related to intellectual property, commercial laws and digital assets laws, please get in touch with the author Rajiv Suri directly on [email protected]
Rajiv Suri is a senior associate in the intellectual property and corporate and commercial team at Alsuwaidi & Company. Rajiv advises clients on strategies involving a wide range of intellectual property and commercial laws including contractual agreements and digital assets. He has been involved in managing corporate portfolios across various industries.