New UAE Laws Part 2: Issuance of UAE Cabinet Decision on the Regulation of Virtual Asset Activities and Service Providers

In continuation of the developments in relation to the regulation of virtual assets in the UAE, the Cabinet has issued Decision No. 111 of 2022 Regulating Virtual Assets and their Service Providers (the “Decision”).

 Scope of Application

The Decision is applicable to the:

1. virtual asset sector in the UAE, including free zones;
2. virtual asset activities (as listed below) undertaken in the UAE; and
3. virtual asset service providers operating in the UAE, including the free zones.

It excludes: (i) virtual asset regimes in the financial free zones; (ii) digital securities and digital commodity contracts; and (iii) payment instruments regulated by the UAE Central Bank.

Licensable Activities

The Decision prohibits carrying on any of the following activities in the UAE without having obtained approval and license from the Securities and Commodities Authority (“SCA”) or a relevant local licensing authority:

• services for the operation and management of virtual asset platforms;
• services for the exchange between one or more forms of virtual assets;
• services for the transfer of virtual assets;
• brokerage services of trading virtual assets;
• service for the custody and management of virtual assets and enabling control over them; and
• financial services in connection with the offer and/or sale of virtual assets or participating in providing such services.

The Decision appears to consolidate the regulation and licensing of virtual asset activities at a federal level by explicitly granting authority to SCA to license and supervise the conduct of virtual asset activities within the UAE. Separately, there appears to be recognition of local licensing authorities such as Dubai Virtual Assets Regulatory Authority (“VARA”), however any license or permissions issued would be subject to overall oversight and control of the SCA. SCA is permitted to delegate any of its functions. This is likely to be confirmed through the implementing regulations and/or further guidance that will likely be issued, noting that the Decision contemplates issuance of regulations required for implementation of the Decision, which are expected to be issued by SCA in coordination with the local licensing authorities.

Transition

Under the provisions of the Decision all virtual asset providers in the UAE are required to ensure their compliance of the Decision within three (3) months from the date of its coming into force, unless such period is extended by SCA.

The Decision comes into force thirty (30) days after the date of its publication in the Official Gazette, which was 15 December 2022.

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