Lately, there has been lots of talk about cryptocurrencies and NFTs in the UAE.And with such a rapidly growing sector, it is often hard for governments, legislators and regulators to keep up. At Swiss Group, we have been monitoring the situation very carefully, and we are delighted the UAE is taking steps to ensure a well-regulated, safe and secure environment for crypto activities.
In fact, recent news revealed the UAE is set to issue federal licenses for virtual asset service providers shortly to help attract some of the world's biggest crypto companies.
The UAE could well become a world centre for crypto trading, especially after recent news that Binance, the world's largest digital asset exchange based on value, is planning to start officially licensed operations in Dubai.
But what are virtual assets?
As with many emerging technologies, there can be confusion. The UAE legislature has decided to refer to cryptocurrencies, NFTs and other emerging online assets as virtual assets – in simple terms, anything of value that can be bought and sold online. And cryptocurrencies? A cryptocurrency is a digital or virtual currency secured by cryptography (secure online communication), making it almost impossible to counterfeit or double-spend. Bitcoin, Ethereum and Tether are three of the largest cryptocurrencies. They are purely digital assets, based on a network distributed across a large number of computers. This decentralised structure means they exist outside the control of governments and central authorities.
But of course, that can mean there is a great deal of price volatility and potential use in criminal activities. Regulators globally are scrambling to bring real-world order to this largely unregulated world of currency trading.
NFTs – Non-Fungible Tokens – represent the latest way for people to invest. An NFT is basically a piece of unique art, digital ephemera or something like music or other virtual assets. The blockchain, backed trading of NFTs, means ownership is undisputed, and people are mostly trading in digital images and collections of images in the hope that scarcity and desire collide to raise the price of their NFTs.
Bringing virtual asset investment regulation to the UAE means companies, individuals and investors can confidently deal in virtual assets here, safer in the knowledge that there are authorities in place issuing licences and monitoring the nascent virtual asset markets.At Swiss Group, we are eagerly following the development of the sector, and the legal framework it must operate within. Ruler of Dubai, Sheikh Mohammed, took to Twitter to announce Dubai's new Virtual Asset Regulation Law, which he said is designed to create an advanced legal framework to protect investors and provide international standards for virtual asset industry governance.
"We established an independent authority to oversee the development of the best business environment in the world for the virtual assets in terms of regulation, licensing, governance and in line with local and global financial systems," he said in a tweet.
He also announced a new Virtual Asset Regulatory Authority, VARA. VARA will regulate the sector across Dubai, including special development zones and free zones, but its remit excludes Dubai International Financial Centre.
The newly established authority holds responsibility for licensing, with legal and financial autonomy over the virtual asset sector. It is linked to the Dubai World Trade Centre Authority (DWTCA). It is hoped that Dubai World Trade Centre will become a comprehensive ecosystem for cryptocurrencies and providers of related services. And VARA has already issued a crypto exchange licence to Binance, enabling the platform to operate some virtual exchange services out of DWTCA. According to Reuters, Binance is working with DWTCA to "help set up an international virtual asset ecosystem in Dubai and assist with the development of virtual asset regulations."
Michael Lane, Managing Director of Swiss International Legal Consultants Ltd says: "The complexity of this nascent virtual economy is such that it makes perfect sense to have an overarching authority to ensure those involved in virtual assets business are protected and regulated. This is a sign of an economy that is quick to react to market needs, and strongly underlines the rapid growth of the sector in the UAE.
"VARA is a positive step in ensuring businesses and investors can act with greater confidence in their crypto dealings. The local digital economy already contributes some 4.3 per cent of the UAE's GDP - which amounts to about AED100 billion. It's a sector ripe for regulation.
"As enquiries regarding setting up crypto business and NFT trading services increase at Swiss Group, we are continuing to follow the establishment of VARA and other laws and regulations governing the sector, locally, regionally and internationally.
We will report more as the VARA regulations are published - expected this summer. Meanwhile, the national Securities and Commodities Authority (SCA) recently stated that it is coming closer to issuing the regulatory and supervisory framework related to virtual assets issued for investment purposes. Perhaps most noteworthy is that "any person wishing to conduct a virtual assets services provider business in the mainland must obtain an initial approval from the Authority, in accordance with the Regulations Manual of the Financial Activities (the licencing rulebook), before obtaining a commercial license from the competent authority.
"What is becoming clear is that the UAE is now taking solid steps to become a leading global player in these exciting emerging technologies.