In order to create an ecosystem that generates long-term economic growth through digital innovation, the United Arab Emirates enacted the Virtual Assets Regulation Law No. 4 of 2022 dated 28 February 2022 (“Dubai Virtual Assets Law” or “DVAL”). The Law is intended, firstly, to protect investors and, secondly, to establish international standards for virtual assets in the United Arab Emirates.
A. What is a virtual asset
Cryptocurrencies offer a novel way of arranging transactions without the need for a certification process involving third parties. The previously established processing by a bank is now carried out in a decentralized manner via a cryptographically secured algorithm (for example, using blockchain technology). Cryptocurrencies exist in different forms and with different purposes, which also reflect on the accounting regime. The best-known cryptocurrency is Bitcoin, which has existed since 2009.
B. Regulations for cryptocurrencies
As early as autumn 2021, the topic of regulating digital assets was dealt with within the Dubai Financial Centre. The questions arose as to which trading platforms should be permitted.
I. Regulatory scope
With a comprehensive regulatory framework, the DVAL will come into force upon its publication in the Official Gazette. Its scope is limited to the authorization of activities related to virtual assets in the Emirate of Dubai (including the free zones and special development zones but excluding the Dubai International Financial Centre). Services related to virtual assets at the federal level are excluded from the regulations of the DVAL.
II. Local Regulatory Authority VARA and its Duties
The Act further establishes a separate authority called the Dubai Virtual Assets Regulatory Authority (“VARA”) as the regulatory authority overseeing the regulation and licensing of virtual assets activities in Dubai. It reports to the Dubai World Trade Centre (“DWTC”).
VARA’s responsibilities include ensuring beneficiary data protection, assisting in anti-money laundering, raising public awareness of virtual asset trading and the risks involved, and coordinating with the UAE Central Bank. It is also tasked with determining administrative services, clearing and settlement services, as well as classifying and specifying the types of virtual assets.
In order to be “licensed” by VARA to provide services related to virtual assets, it is a requirement that the applicant operates in the Emirate of Dubai and can produce a business license from the relevant commercial authority in Dubai. Article 16 of the DVAL details which activities are subject to licensing and regulation by VARA. Violations of the DVAL are punishable by certain penalties and fines, including revocation of the license for up to six months.
Specific implementing regulations on the implementation of the DVAL, which contain a description of the activities, the exempted virtual assets, the procedures for licensing and the associated fees and charges, are not yet available.
Moreover, their accounting treatment remains controversial and the subject of extensive debate. A variety of functions and forms can lead to different accounting assessments. The question of appropriate accounting therefore usually remains a case-by-case decision.
Worldwide, this sector is not yet fully regulated. Accordingly, existing guidelines should be known to local investors and residents before they invest in this sector. In the course of the development of this new industry, many entrepreneurs and investors – both domestic and foreign – have brought digital assets to the market in recent years. Thus, virtual assets can be bought and sold on various digital platforms such as DEX Crypto Exchange, Matrix, Saxo Bank, Binance, Coinbase and others. Separately, DWTCA and Binance announced plans to establish a new center for global virtual assets in Dubai.
As soon as additional regulation becomes available, we shall inform you about further developments and provide you with further insights to the new law and its developments.