Digital assets like Cryptocurrencies have always been in limbo in absentia of jurisdiction and regulatory bodies to govern the issuance of the same. The global markets are in abeyance and uncertainty for the time being.
However, amidst the chaos, Dubai has come up with a concrete licensing regime to govern the crypto assets and their providers.
The framework came right after the massive downfall in the valuation of the crypto assets due to the malpractices of the regulators and third parties. The framework aims to instill confidence and certainty among investors with respect to their investment in cryptocurrency.
The Rules Are Likely To Introduce A Slew Of Changes With Respect To The Governance Of Crypto Assets
The new rules are meant to regulate the emergence of crypto providers and regulators in order to cut down upon speculation and unauthorized issuance. With this development, Dubai has become the first jurisdiction to regulate not just the cryptocurrencies but also the cryptocurrency providers.
All the emerging companies would be necessitated to comply with these rules as failure to comply with the same would attract severe punishments. The rules have been published in the official gazette and their enforcement is very certain. It has also established the Virtual Asset Regulatory Authority, which would be operational in the capacity of a watchdog to oversee the compliance of these rules.
The authority would issue licenses and permits to existing and new companies to deal with crypto assets. Mr. Mohammed Reda. The Head of Compliance at Hex Trust, which probably became the first institutional custody provider to receive a nod to continue its operations, expressed his relief upon the implementation of the new rules.
The rules are however not comprehensive and have a scope for further development. The rules impose high costs of compliance upon the companies. This may act as a deterrent to the smaller firms entering the market for the want of capital.
According to the official document, any company that wants a license to kickstart its crypto operations must pay an application fee of USD 27,200 which is equivalent to 100,000 UAE Dirham. In addition to the application fee, the applicant would also be required to pay an annual supervision fee which may be double the amount of the application fee.
The payment of the application fee does not confirm the approval and if in case the application gets rejected, the fees would be forfeited too and will not be refunded back. The crypto service providers can apply for additional services such as custody, lending, and pledging, and for this, they may require to pay an additional amount of fees.
All of these expenses make compliance a costly affair in Dubai. This cost is even higher than the cost of supervision in the neighboring middle east countries like Abu Dhabi wherein only USD 20,000 and USD 15,000 are payable as application fees and supervision fees respectively.
These rules are likely to strengthen Dubai’s position in order to become a global hub for blockchain development. All rules will be applicable to the issuers of crypto assets, tokenized currencies, spot and derivative transactions, and other forms of virtual assets. There is a separate license for every cryptocurrency, but if the number of assets exceeds more than 5, then the applicant may apply for Multilateral Trading Facility License.
Once the license has been issued, the applicant would be under the tight supervision of the Virtual Asset Regulatory Authority. In a recent interview, the UAE Minister for Digital Economy Omar Bin Sultan Al Olama confirmed that the new rules would grab the violators and subject them to strict scrutiny.
The rules are however not prescriptive and must be adjusted to the fast-facing world according to the requirement of every company. Partners and Attorneys at DLA Piper, the prime legal advisor for the Virtual Asset Regulatory Authority, have expressed their satisfaction with the sufficiency of the rules.
They have been formulated in order to enhance the clarity and participation of the competent players in the market. Currently, there are no entities that are regulated by a license issued by the Virtual Asset Regulatory Authority.
However, the need to specify the regulation for Stablecoins and tokenized assets is still felt despite the operationalization of the new rules. The new framework fails to uniquely address the governance of the stablecoins but only sets limits for the liquid asset reserve requirements of these coins.
The legislators and the policymakers are contemplating and promulgating these loopholes so that Dubai can become an effective jurisdiction to monitor the movement of the crypto assets and the providers in line with the international practices of countries like Singapore and Russia.