A virtual asset, in simple terms, can be defined as a digital representation of value that is traded online and acts as a medium of exchange or a store of value but does not have a legal tender status.
Cryptocurrency is a virtual asset. Non-fungible tokens, called NFTs are also part of the virtual asset umbrella. Unlike fiat currency, which is issued and backed by the government, cryptocurrencies are based on ledger entries called blockchain and are not issued by the bank or the government. Cryptocurrencies are decentralized – meaning there is no central controlling system (such as a bank for fiat currency) which upholds or maintains them.
Virtual Assets in UAE
United Arab Emirates is fast emerging as the global leader for virtual asset platforms as the country has introduced new laws to cultivate and regulate the nascent crypto ecosystem. A comprehensive regulatory framework significantly reduces the risk of the virtual asset system being misused for financial crimes. It also gives clarity and provides insight around issues related to consumer protection, disclosure and transparency, amongst others.
In the past few months itself, many licenses have been granted to virtual asset platforms. For instance, VARA granted one of the world’s largest crypto exchanges, Binance a license to operate in Dubai.
Similarly, another crypto exchange, Kraken, has received permission to operate in the Emirate of Abu Dhabi. The number of platforms flocking to the UAE to operate their virtual assets trading is exponentially growing as the Governments of the Emirates of Abu Dhabi and Dubai have made the legal environment conducive for these exchanges to operate.
Dubai
Under the new law issued by the Emirate of Dubai, called Law No. 4 of 2022, a regulatory authority called the Dubai Virtual Assets Regulatory Authority (VARA) has been established.
VARA is affiliated to the Dubai World Trade Centre. It is a key authority in the virtual asset space in Dubai as it is the authority responsible for issuing permissions for virtual trading platforms to operate in Dubai. VARA is also responsible for issuing permits related to services in safekeeping, management or control of virtual assets, virtual assets wallets and trading in virtual tokens.
As a regulatory authority, VARA also has the right to suspend or cease activity of virtual assets in the event of non-compliance with the regulatory framework.
Abu Dhabi
In Abu Dhabi, Abu Dhabi Global Market is the jurisdiction with comprehensive regulatory framework for virtual asset activities. Abu Dhabi Global Market is an international financial centre and a free zone, which follows its own laws and regulations, independent from onshore UAE.
The authority which is responsible for regulating virtual assets in ADGM is the Financial Services Regulatory Authority (FSRA).
The FSRA grants licenses to virtual assets trading facilities and market intermediaries such as brokers, dealers and custodians dealing and managing virtual assets. Trading facilities must meet the requirements related to market surveillance, settlement and transparency.
Conclusion
Setting up a regulatory framework for virtual assets in the UAE has given UAE, not only first movers’ advantage on a global level, but has heralded UAE as the most sought-after destination for virtual asset businesses being set up and operated.
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