The Government of Dubai issued new Law No. 4 of 2022 Regulating Virtual Assets (“the Law”), which came into force on the 11th of March 2022. The DVAL is the first law in Dubai, which specifically regulates virtual assets and shall apply throughout Dubai (including free zones and special development zones, but excluding the Dubai International Financial Centre ("DIFC")).
The Law establishes a general framework in which it introduces the Dubai Virtual Asset Regulatory Authority (“VARA”) as the competent body to oversee and regulate all matters related to the industry. VARA will have a separate legal personality, and it will be affiliated to Dubai World Trade Centre Authority.
What is a “Virtual Asset”?
Article 2 of the Law broadly defines Virtual Assets (“VA”) as a
“digital representation of the value that can be digitally traded or transferred, or can be used as an instrument for exchange, payment or investment purposes, including Virtual Tokens, and any digital representation of any other value specified by the VARA in this regard”.
It appears that the definition under the Law is wide enough to encompass both, cryptocurrencies (such as Bitcoin, Ethereum, etc.) and crypto tokens (such as non-fungible tokens referred to as NFTs).
VARA will regulate, supervise, and control VA services. In doing so, VARA will:
• Organize the issuance and offering of VA and Virtual Tokens
• Organize and authorize Virtual Asset Service Providers
• Ensure the highest standards of protection for beneficiaries’ personal data
• Organize the operation of VA platforms and portfolios
• Monitor transactions to prevent price manipulation of the VA
The Law sets out a preliminary framework for the licensing of individuals and entities who wish to provide VA services (“VASPs”). In order to conduct the activities outlined in Article 16 of the Law, individuals and entities intending to become a VASP must:
• Have the headquarters of their business in Dubai;
• Obtain prior approvals and permits from VARA before commencing the procedures for licensing it from the competent commercial licensing authority; and
• Comply with the limits of the requirements, rules and controls that are specified in the permit that is granted by VARA.
Conducting or providing any VA related service listed in Article 16 is strictly prohibited without first obtaining a license. Such activities are:
• VA Platform operation and management service;
• Services of exchange between VA and currencies, whether national or foreign;
• Services of exchange between one or more form(s) of VA;
• VA transfer service;
• VA custody, management, or control services;
• Services related to VA Portfolios; and
• Services related to offering and trading in Virtual Tokens.
VASPs Obligations to Share Data with VARA
The Law provides that VASPs must cooperate with any requests from VARA to enable it to carry out its competencies and achieve its objectives. It is believed that this obligation is meant to secure VASPs implementation of Anti Money Laundering regulations, and to reduce concerns that VASPs platforms might be misused for suspicious activities. This may suggest that personal information available with VASPs, such us personal identity information, utility bills etc., which are required to open an account, will be accessible to VARA.
Housed in Dubai World Trade Centre, VARA has already commenced its operations on a minimum viable product stage and is simultaneously drafting implementing decisions in collaboration with international experts in the Virtual Assets Industry. Although the requirements for obtaining a license are not publicly available yet, it is predicted that VARA will publish the regulations by second half of 2022. Nonetheless, media has announced that VARA has already granted two provisional licenses to Binance, one of the most renowned crypto exchange platforms, a special license to offer its VA services to pre-qualified investors, and to BitOasis, a leading VASP founded and headquartered in Dubai.