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The UAE issues a new Cabinet Resolution on the regulation of Virtual Assets
Middle East | Publication | January 2023
On 12 December 2022, the UAE Government issued Cabinet Resolution No.111 of 2022 on the regulation of Virtual Assets and Service Providers (the VA Resolution, published in issue no.741 of the UAE Federal Gazette dated 15 December 2022) which comes into force on 14 January 2023 (30 days after publication). The main aim of the VA Resolution is to protect consumers, enhance the UAE regulatory framework applicable to the virtual asset sector, to regulate virtual asset activities and related service providers, and to ensure that virtual asset service providers (VASPs) are within the scope of the UAE AML legislation.
We set out below some of the main highlights of the VA Resolution, pending the publication of the English version.
Scope of application
The VA Resolution applies throughout the UAE, with the exception of the financial free zones (FFZs). It applies to companies operating in free zones, thereby bringing companies regulated by the Virtual Asset Regulatory Authority (VARA) in Dubai within the remit of the VA Resolution.
Certain activities which are regulated by the Central Bank of the UAE (including dealing with crypto payment tokens and stored value tokens) and the Securities and Commodities Authority (SCA) (including dealing with crypto securities and commodities contracts) are also excluded from scope of the VA Resolution.
What are the activities which can be licensed under the VA Resolution?
The VA Resolution sets out a number of activities which fall within its regulatory scope and would require licensing. These include (among others):
- operating a crypto exchange;
- operating a crypto brokerage; and
- holding and controlling crypto tokens.
Carrying on any of the specified regulated activities in the UAE (excluding in the FFZs) as provided for under the VA Resolution would require the necessary license from the SCA or from a “local licensing authority”. A “local licensing authority” is broadly defined as the “local authority competent to regulate virtual assets in an Emirate”. We read this to include the VARA.
Interestingly, the VA Resolution includes an express prohibition preventing any person from dealing with a VASP that is not duly licensed by the competent UAE regulator. It is not clear at this point how this prohibition might be enforced, and what the sanctions for breach may be.
Who will administer the VA Resolution?
The SCA is designated as the administering authority under the VA Resolution. As such, the SCA has broad supervisory and enforcement powers to ensure compliance with the VA Resolution, and to help further the VA Resolution’s aim of protecting consumers.
The VA Resolution grants the SCA express powers to supervise and monitor VASPs that are licensed by the local licensing authorities. Under the VA Resolution, the SCA may delegate any of its regulatory powers to a local licensing authority such as the VARA, and to VASPs themselves. However, it is unclear at this stage exactly how this would work in practice.
Is there a timeframe for compliance with the VA Resolution?
VASPs which fall within the scope of the VA Resolution have three months from its entry into force to comply. We expect the SCA to issue implementing regulations in coordination with the local licensing authorities in due course. These additional regulations should help to provide further clarity on aspects of the VA Resolution that are currently not spelled out.
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