UAE law

The laws apply to market participants within the Emirate of Dubai, with the exception of those under the Dubai International Financial Centre.

The Virtual Asset Regulatory Authority (VARA), the regulator in charge of overseeing cryptocurrency laws within Dubai, has issued new guidelines for virtual asset service providers (VASPs) operating within the emirate. 

According to Irina Heaver, a crypto and blockchain lawyer based in the United Arab Emirates, VARA has issued its “Full Market Product Regulations,” which include four compulsory rulebooks and activity-specific rulebooks that lay down the rules for operating VASPs. The rules only apply to market participants within Dubai, excluding those operating under the Dubai International Financial Centre (DIFC), a free zone with its own regulator.

⚠️Dubai News

Dubai’s Vurtual Assets and Regulatory Authority issued the long-awaited Full Market Regulations for Vurtual Assets Services Providers (VASPs).

— Irina ₿. Heaver (@IrinaHeaver) February 7, 2023

The Dubai regulator also highlighted that all market participants, whether they are licensed by VARA or not, must adhere to regulations for marketing, advertising and promotions regulations. Violators will be fined between 20,000 dirhams ($5,500) and 200,000 dirhams ($55,000), and repeat offenders could see fines as high as 500,000 dirhams ($135,000).

The regulations also give guidance on other matters, such as the issuance of virtual assets. According to Heaver, there are several takeaways from the new update from VARA, including that issuing privacy coins is prohibited in Dubai and traders with trading capital above $250 million are required to register with VARA.

The regulation also sets fees for advisory services, licensing, and annual supervision for custody, exchanges, broker-dealers and lending services. The fees range from 40,000 dirhams ($11,000) to 200,000 dirhams ($55,000), depending on the services.

Related: Lawyer explains new federal virtual asset law in the United Arab Emirates

Commenting on the new development, Heaver told Cointelegraph it’s a good thing that VARA provided clarity for the crypto space, explaining:

“Regulatory certainty is very good for business. It is good for consumers, investors and for the Emirate of Dubai. The regulations are long-awaited and mostly welcomed.”

Heaver added that although VARA has a broad authority to interpret the regulations and apply them in the way it sees fit, she believes and trusts that such interpretation and application will be done in line with “the spirit of Dubai’s leadership,” which considers business acumen and fostering entrepreneurship.

Failure to comply with the new law could lead to a hefty fine of up to $2.7 million, ejection of profits and criminal investigation.

The United Arab Emirates (UAE) has passed a new law that governs virtual assets, setting up the country’s initial regulatory regime for the cryptocurrency space at the federal level. 

Before the federal-level regulation, the UAE already introduced several supervisory initiatives for digital assets in economic free zones like the Abu Dhabi Global Market (ADGM). Last year, Dubai also established its own crypto regulator called the Virtual Asset Regulatory Authority (VARA).

Irina Heaver, a UAE-based crypto and blockchain lawyer, explained that the move has several implications. According to Heaver, the new law ensures that entities that engage in crypto activities must secure a license and approval from the new regulator. Non-compliance could lead to a hefty fine. She explained:

“Failure to comply leads to heavy sanctions, such as a fine of up to 10 million AED ($2.7 million), disgorgement of profits and even criminal investigation by the public prosecutor.” 

Heaver highlighted that the law is expected to come into force on Jan. 14 and would require crypto entrepreneurs operating in the country to conform. “Every crypto and Web3 project operating in the UAE will have to structure a way to comply with the new federal law and all of the existing laws,” she explained. 

Meanwhile, despite the minimum requirements for virtual asset service providers (VASPs) being attainable, the lawyer thinks that many firms may have some difficulties. “Those are actually rather realistic. However, the practice shows that most crypto companies fall short of even basic requirements,” said Heaver.

Related: How does the FTX collapse affect Dubai’s crypto ecosystem?

The crypto lawyer also highlighted that the law has also set up minimum requirements for VASPs. According to Heaver, all VASPs are required to comply with the legislation in force on combating money laundering crimes, the financing of terrorism and the financing of unlawful organizations. In addition, all legal entities that fall into the VASP category will have three months to adapt and comply with the new law. 

Despite establishing a new law dedicated to protecting consumers, Heaver believes that preventing FTX-like entities from attempting to commit fraud would be challenging. Dubai’s VARA still previously gave FTX approvals before revoking it in November. She noted: 

“From the evidence that emerged, FTX is a case of serious fraud of a level that will look Madoff look like an angel. Unfortunately, no levels of laws can protect us from people wanting to commit crimes intentionally.“

Overall, the lawyer believes that this new development is good for founders, investors and consumers within the UAE and that regulatory clarity gives the country the right ingredients to be the “Web3 capital of the world.”