The regulatory landscape for digital assets in the UAE
Historically, many people questioned the utility of cryptocurrencies as a medium of exchange or an asset class. Concerns ranged from their volatility and security to their acceptance and regulatory status. However, over time, these issues have been addressed through technological advancements, increased adoption, and evolving regulatory frameworks, leading to cryptocurrencies becoming mainstream.
Globally, the regulatory landscape for digital assets has been evolving rapidly. Countries like the United States, the UK, Japan, and Switzerland have implemented comprehensive regulations to manage and foster the growth of digital assets. Dubai, a global financial hub, has experienced a significant surge in cryptocurrency-related activities in recent years. As the digital asset space continues to evolve, the need for effective regulation becomes increasingly important. In response, Dubai has implemented progressive digital asset regulations, reflecting the Emirate's commitment to fostering a supportive environment for digital and blockchain ventures. H.H. Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, aims to “Establish the UAE and Dubai as a key player in designing the future of virtual assets globally” 1.
Federal Regulation
The regulatory landscape for digital assets in the UAE is structured at the federal and local emirate levels as well as within two financial free zones, the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). This multi-layered regulatory approach ensures that the UAE remains a competitive and secure environment for digital asset activities, balancing innovation with robust oversight.
The Securities and Commodities Authority (SCA) is the federal-level financial services regulator with respect to securities, commodities, and Virtual Assets Service Providers (VASPs). The UAE Central Bank regulates certain aspects of virtual assets, particularly those related to stored value facilities and fiat-backed stablecoins. The SCA oversees the regulation of virtual assets (VAs) across the UAE, pursuant to Cabinet Decision No. (111) of 2021 on the Regulation of Virtual Assets and their Service Providers. This Decision defines VAs and outlines the activities that require licensing, such as trading, custody, and management of VAs.
The Decision confirms that overall federal authority rests with the SCA, which can delegate this authority to Local Licensing Authorities, which are entities designated to oversee VAs within their respective Emirates. This delegation is a strategic move that allows for a more localized and specialized approach to regulation, catering to the unique needs and dynamics of each Emirate while maintaining a unified federal oversight. Under Cabinet Resolution No. 112/2022 (on delegating certain competencies related to the Regulation of Virtual Assets), the SCA delegated its powers to the Dubai Virtual Assets Regulatory Authority (VARA) with respect to the licensing and regulation of VASPs in Dubai (excluding the DIFC).
Local Emirate Level
Dubai - Onshore
VARA was established in March 2022 under Law No. (4) of 2022 (Regulating Virtual Assets in the Emirate of Dubai). VARA was created to provide a legal framework for the regulation of VAs in Dubai excluding the DIFC. DLA Piper was appointed VARA’s exclusive global advisor and worked closely with VARA to devise Dubai’s first regulatory framework specific to VAs.
In February 2023, VARA issued its Virtual Assets and Related Activities Regulations (VARA Regulations) and associated rulebooks which, together with the VARA Regulations, form the Virtual Asset Framework (VA Framework). The VA Framework applies in the Emirate of Dubai and to all firms providing services to or from Dubai except for firms conducting business in the DIFC. The VA Framework provides a framework for the licensing of VASPs and rules for their operation.
SCA and VARA - Cooperation Agreement
On 5 September 2024, the SCA and VARA entered into a cooperation agreement that delineates their regulatory responsibilities and updates the licensing and supervision protocols for VASPs in the UAE. Under the new agreement, VASPs operating in or targeting Dubai must obtain a license from VARA. Once licensed by VARA, these entities are automatically registered with the SCA, enabling them to operate throughout the UAE. VASPs intending to operate in Emirates other than Dubai must obtain their license directly from the SCA. The DIFC and the ADGM are exempt from this agreement. These financial free zones operate under their own independent regulatoty framework.
Law Enforcement
VARA has law enforcement capacity to impose fines, suspensions, and revoke licenses where it determines that there has been a violation of the Virtual Assets Law. In terms of appeals, VARA’s Grievance Committee was established in June 2023 as a means before which regulated entities can seek to effectively appeal VARA enforcement actions. VARA plays a crucial role in positioning Dubai as a leading hub for VAs, balancing innovation with robust regulatory oversight.
Dubai – DIFC
The DIFC has its own regulatory body, the Dubai Financial Services Authority (DFSA), which oversees VA activities within the financial free zone. The DFSA operates independently from VARA and has its own set of regulations tailored to the DIFC. Firms who want to provide financial services in relation to VAs will need to obtain the appropriate license from the DFSA.
Abu Dhabi - ADGM
The ADGM also has its own regulator, the Financial Services Regulatory Authority (FSRA). In 2018, the ADGM became the first jurisdiction globally to introduce and implement a comprehensive and bespoke regulatory framework for the regulation of exchanges, custodians, brokers, and other intermediaries engaged in VA activities. The ADGM regulatory framework for VAs is designed to create a secure and transparent environment for VA activities. The framework covers a wide range of activities related to VAs, including exchanges, custodians, brokers, and other intermediaries. These activities are regulated to ensure compliance with international standards. Firms wishing to conduct VA-related business in the ADGM must obtain the necessary licenses from the FSRA.
The FSRA continuously updates the regulatory framework to align with global developments and emerging risks. This ensures that the framework remains relevant and effective in addressing new challenges. This framework, supported by the ADGM’s direct application of English common law, provides legal certainty and comfort for VA transactions undertaken in its market.
Conclusion
The UAE has established a robust and multi-layered regulatory framework for digital assets, positioning itself as a global leader in the virtual asset space. By balancing innovation with rigorous oversight, the UAE ensures a secure and competitive environment for digital asset activities. The collaboration between federal and local regulatory bodies, such as the SCA and VARA, highlights the UAE's commitment to fostering a supportive ecosystem for digital and blockchain ventures.
At DLA Piper, our experienced team of lawyers are at the forefront of the rapidly evolving legal landscape of digital assets and digital finance. Our team has a proven track record of successfully representing clients in complex, high-value disputes in both onshore litigation and offshore litigation including in the DIFC Courts, the ADGM Courts and international arbitration. We can provide the strategic advice needed to protect your interests and navigate the challenges of operating in this emerging space.
Whether you require assistance in recovering misappropriated digital assets, advice on structuring digital asset transactions, or representation in litigation or arbitration, DLA Piper possesses the knowledge, experience, and global reach to achieve the outcomes you need.
1 Government of Dubai, Mohammed bin Rashid approves law to regulate virtual assets in Dubai.
