UAE has been showing signs of progression in favor of crypto in recent times. Currently, Dubai is supporting the rapid increase of crypto companies. However, the country doesn’t seem to be prepared for it given the little to no clarity on the regulation of the sector.
There is no official announcement or release of framework or companies to create or launch products from the Virtual Assets Regulatory Authority (VARA), which is the sole authority regulating virtual assets across Dubai established under the law issued by the country’s monarch Sheikh Mohammed bin Rashid Al Maktoum. The officials nonetheless have assured the local companies about the framework expecting it by the end of the year.
VARA is a newly established regulatory body, around 7 months old, and had previously released some guidelines on the promotion of virtual assets including marketing and advertising. It has also handed out MVP (minimum viable product) licenses to some of the renowned crypto companies allowing them to offer their complete services.
The companies are keeping high hopes regarding friendliness from Dubai’s VARA compared to jurisdictions with slow licensing rates considering its prominence as a business tourism hub and low tax rates and easy visa for working staff from talent hubs like India-Pakistan.
UAE envisions Dubai to be a top metaverse economy and create 40,000 virtual jobs and simultaneously welcome the crypto sector. Additionally, it is also making efforts in anti-money laundering (AML) regulation to get off the grey list of the Financial Action Task Force (FATF). The nations on the grey list are the jurisdictions with more surveillance required and have been suggested to fix their strategies deficiencies. FATF is also going to carry out annual inspections to ensure that nations are adhering to the AML and counter-terrorist funding regulations on crypto companies.
Irina Heaver, a leading cryptocurrency and blockchain lawyer based in Dubai has raised concerns regarding the anticipated regulations as the companies are already establishing the clients. She also says that in absence of the regulatory framework some of the unacceptable features of the industry have already made a place in the city including YouTubers shilling altcoins to their viewers along with other projects intending to carry out scams or rug pulls.
Heaver also mentioned that the industry should be cleaned up, pointing out the numerous existing free zones which serve as a good spot for hiding and are easier to navigate too.
James Bernard, founding member of the Dubai Global Blockchain Council said that VARA is inviting the top companies from around the globe to be a part of its MVP be it exchanges, decentralized finance (DeFi), or non-fungible tokens (NFT) projects. The regulator is also going to start discussion groups to frame the best possible framework in all aspects.
The crypto industry experts have appreciated the country’s efforts to set up a separate regulatory authority just for digital assets whereas most regulators have tried fitting regulation of digital assets under traditional regulatory models. Some experts have also acknowledged the FATF’s travel rule and have raised concerns on its compatibility. They have also suggested regulators be proactive and have encouraged an exchange of information between different companies.
While the companies can still find support from regulators there is very little scope for acceptance from traditional entities. There have been stringent restrictions on the companies in opening their bank accounts including the conditions like only allowing accounts to be opened in dirham, the currency of UAE and only serving professional investors and not retail investors.
Heaver said the risk factor in crypto is driving these banks away and its infrastructure isn’t proving to be much beneficial or friendly to the entrepreneurs or startups and are only MNC-centric. However, a change in the coming times can be expected as a lot of banks are looking forward to making their terms flexible and friendly towards crypto companies.