How the UAE has established itself as a global front runner in the race to regulate digital assets
by Max Davis, Legal Director at Charles Russell Speechlys
The clamour for effective regulation governing crypto assets has only grown louder following the fallout from FTX’s collapse.
Legislators and regulators across the world have responded by creating, updating and innovating more robust regulatory regimes that can both mitigate risk and facilitate the exciting opportunities that crypto assets present.
In the race to regulate digital assets attractively and effectively, the UAE has established itself as a global frontrunner. The region’s strategic vision of becoming a regulatory pioneer was self-evident as far back as 2018, when the Abu Dhabi Global Market became the first jurisdiction in the world to introduce a bespoke framework for digital assets. The rest of the UAE was quick to follow suit.
A strategic mindset
The UAE prides itself on its appetite for innovation and its ambition, and that comes from the top.
In 2022, the UAE’s Vice-President, Prime Minster and the Ruler of Dubai, His Highness Sheikh Mohammed spoke on Twitter of his hope that “Dubai will provide the most advanced virtual asset ecosystem in terms of organization, governance and security”.
Across the UAE, the individual emirates and free zones have been working tirelessly to establish strategies that promote the adoption of digital assets across a wide range of topics from blockchain and the metaverse, to NFTs and crypto tokens, to a central bank digital currency (CBDC). The result is that a diverse and sophisticated digital assets ecosystem has taken shape in the UAE much more quickly than it has in other jurisdictions.
Digital assets have flourished in the UAE as a result. Crytocurrency exchanges Kraken and Binance obtained licences to operate in the Abu Dhabi Global Market. The Dubai Police force launched two NFT collections (becoming the first police force in the world to do so) and Bake N More, a Dubai based coffee shop, became one of the first retail businesses in the region to accept payment by cryptocurrency.
Staying one step ahead
The various regulators within the UAE keep pace with developments through a system of public consultations on specific aspects of virtual assets, issuing new regulations and guidance and incorporating updates to the regulatory rule books. Already in 2023, there has been a further significant development.
On February 7, the Virtual Assets Regulatory Authority (VARA) published its Virtual Assets and Related Activities Regulations 2023, which sets out the regulatory framework governing virtual assets (including cryptocurrencies) and all related activities in Dubai (excluding the DIFC). VARA will be the first regulator to operate in the metaverse.
As one of the first regions to implement a virtual assets framework, the UAE is already addressing certain questions in practice that other jurisdictions are still contemplating in theory. For example, whilst the UK has highlighted the need to consider the payment of damages in cryptocurrencies, the Dubai Primary Court has already ordered the payment of damages in cryptocurrency and is believed to be one of the first courts in the region and possibly the world to do so.
Further updates are expected throughout the year as the virtual assets framework continues to evolve.
What does the future hold?
The adoption of digital assets continues to grow in the region, with MENA projected to be one of the fastest-growing markets globally. Many financial institutions are now exploring the possibility of launching their own crypto tokens to better serve their clients.
The UAE Central Bank is also intending to launch its Digital Currency for both cross-border payments and domestic usage by 2026. Countries that are serious about rising to the challenge of regulating digital assets will no doubt look to the UAE for inspiration.