New UAE Crypto Regulations
UAE Government
The United Arab Emirates consists of a federation of seven emirates (Islamic monarchies). It was formed in 1971 by the seven Emirs (monarchs).
Under the UAE constitution, each emirate surrenders some governmental powers to the federal UAE government. Any powers not specifically assigned exclusively to the federal government are reserved for the emirates.
UAE Monetary Policy
The UAE Ministry of Economy and Finance runs a centralized monetary system. It has the Central Bank of the UAE (CBUAE), which operates much like the US Federal Reserve Bank. Seeking stability and predictability, it moves UAE interest rates along the same lines as the US Federal Funds Rate.
Since 1973, the national currency has been the Emirati Dirham. In practice, the dirham is pegged to the USD. The Dirham currency code is AED.
Global Concerns About Crypto
The UAE harbors the same concerns about the growing popularity of crypto as other countries do. The principal concerns are protecting consumers and preserving the effectiveness of a centralized monetary system to manage their market economies.
Crypto is a decentralized system. Cryptos are created (“mined”) by the process of creating digital “blockchains” that represent crypto transactions. Anybody can mine them with a powerful computer, special software, and a huge source of electric energy. You can buy Bitcoin Cash on paybis on a variety of exchanges.
The UAE has not regulated the mining or digital storage of cryptos or crypto investments until now. But regulators are increasingly concerned about the dangers of crypto investments and the uncertainty of governing laws.
New Dubai Crypto Regulations
In March 2022, the UAE Securities and Commodities Authority (SCA) stated that it is getting closer to adopting a new regulatory and supervisory framework for virtual assets issued for investment purposes.
The statement pointedly noted that the SCA has sole authority in the UAE for licensing, supervising, and overseeing virtual assets activities and services for investment purposes (not virtual assets issued for payment purposes.
In the meantime, the Emirati of Dubai has enacted new rules to regulate crypto assets and established a regulator, the Dubai Virtual Assets Regulatory Authority (VARA), to oversee crypto activities and regulate and license crypto service providers.
The regulated activities include a crypto exchange, transfers of cryptocurrencies, and other services relating to the trading of virtual assets. Virtual assets include cryptocurrencies, but the new law does not yet apply to non-fungible tokens (NFT).
Crypto exchanges will be subject to VARA authorization and regulation. The VARA will also regulate companies offering crypto transfer, custody, and management services.
The new law will apply throughout the Emirati of Dubai. Dubai is the largest of the seven emirates, with 43% (4.2 million) of the UAE’s population, with Abu Dhabi having 30%. Dubai is the financial center of the UAE.
The stated objective of the new law is to make Dubai a global center for crypto assets. It seeks to create a legal framework and predictability for businesses using virtual assets as a payment medium or for investment purposes.
The new law requires that businesses dealing in virtual asset activities also establish a presence in Dubai. Bybit, a large crypto exchange, immediately announced moving its headquarters from Singapore to Dubai.
It is unclear how the Dubai rules are reconciled with the exclusivity of authority claimed by the federal UAE Securities and Commodities Authority (SCA). But Dubai’s regulations will impact most financial transactions in the UAE regardless of what the UAE does.
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