Embracing Fintech: UAE readies to national crypto licensing

Over the years, the United Arab Emirates has been known as one of the fastest growing and developing countries not just in the Arab World but also in the Global Market. We often hear that the UAE is a hub of digital innovation and advanced technology.

Embracing new technology and innovation is what UAE stands for and with that, the country is finally ready to enter the world of cryptocurrencies and make its best effort to attract the largest crypto companies from around the globe. 

The UAE’s authorities are showing great interest and progressive attitude towards the evolving market of cryptocurrencies and envision the country as a future crypto hub attracting both local and international crypto investors. To support that incentive, the Federal Government is planning to issue federal licenses for providers of virtual asset services by the end of Q1 2022. 

The creation of such a licensing system will open more perspectives in this direction and will make the UAE more competitive on the global scale as other countries are also working on creating regulated systems for crypto trading.

Regulation of crypto industry by Securities and Commodities Authority 

The SCA is a UAE institution which is based in Abu Dhabi and established under the decree of Federal Law No. 4 of 2000. It is an independent legal entity which reports directly to the Economy Minister. The Authority supervises and monitors the markets. In December 2021, the SCA stated that it was going to implement some amendments to the regulations on financial activities in the sphere of virtual assets and digital products in the emirates.

On February 17, 2022, the SCA finally completed assessing risks related to virtual assets. The discussion involved representatives of 14 public sector and 16 private sector agencies. The SCA is now completing amendments of the legislation which is in line with the Government’s policy in allowing the Virtual Asset Service Providers (VASPs) to set up their business entities. 

To amend the regulation, the SCA will take into account the input provided by the central bank and local financial centers. Thus, a lot will depend on whether an entity is to be established on the mainland or in any of the free zones. 

It is worth mentioning that some financial free zones have already prepared permits for VASPs:

1. Dubai Multi Commodities Centre — Licensed more than 22 VASPs.
2. Abu Dhabi Global Market — Licensed 6 VASP. 
3. Dubai Silicon Oasis — Licensed 1 VASP. 

Crypto market challenges 

Crypto mining is a topic that is globally discussed by environmentalists and lawmakers due to its high electricity consumption and the overall impact on the environment. The UAE aims to build an ecosystem that will be regulated under federal laws that will take into account all the aspects related to this question.

Since competition is around the corner, the UAE considers all pros and cons and is developing an internal hybrid approach to the evolving crypto industry. Such Dubai-based companies as BitOasis (the largest UAE’s VASP), Binance Holdings Ltd. (the world’s largest cryptocurrency exchange), CoinMENA BSC, and Rain Financial Inc. are promoting the virtual asset industry and working on the right strategy to implement.

Another challenge for the UAE authorities is finding a delicate balance between building a business-friendly environment and controlling the volatility and financial crime that still raise a concern in the crypto industry.

The Financial Action Task Force (FATF) is deciding on whether to include the UAE on it’s so-called gray list of countries that are subject to its review and assessment for any shortcomings in terms of combating money laundering and terrorist financing. Such a procedure is applicable to all financial markets and the new crypto market is not an exception.