Chapter 4
Virtual Asset Regulations
The UAE’s approach to virtual assets regulation is a combination of federal oversight and specific emirate-level regulations. At the federal level, the Securities & Commodities Authority (SCA) and the Central Bank set the overarching policy and regulatory framework.
In December 2022, the UAE government issued Cabinet Resolution No. 111 of 2022, establishing a regulatory framework for Virtual Assets and Service Providers (VASPs). The law clarifies the roles of federal and local regulators, ensuring clear oversight of virtual asset activities. Under this regulation, no entity is permitted to engage in virtual asset-related activities without obtaining the necessary approval and license from the Securities and Commodities Authority (SCA) or its designated regulatory body within the relevant emirate.
Non-compliance with the law can result in severe penalties, including fines of up to AED 10,000,000, disgorgement of profits earned from unlawful activities, and potentially criminal investigation by the Public Prosecutor. These stringent measures underline the UAE’s commitment to maintaining a secure and well-regulated environment for digital assets.
To date, only the Emirate of Dubai has established a local licensing authority specifically tasked with overseeing virtual asset activities within its jurisdiction, in accordance with Cabinet Decision No. 112/2022.
The financial free zones, ADGM and DIFC, have also developed their own regulatory frameworks based on common law principles, with the FSRA regulating ADGM and the DFSA regulating DIFC.
All UAE onshore activity falls under the purview of SCA with the following exceptions:
Emirate of Dubai,
including economic free zones
– which are regulated by VARA
DIFC financial free zone
– which is regulated by DFSA
ADGM financial free zone
– which is regulated by FSRA
Securities and Commodities Authority (SCA)
The Securities and Commodities Authority (SCA) plays a crucial role in establishing the regulatory framework for virtual assets across the UAE. It is responsible for developing specific regulations and guidelines for the treatment of digital assets and issuing licenses for entities operating in the virtual asset space.
The types of licenses issued by the SCA include:
- Virtual Asset Platform Operator
- Custody of Virtual Assets
- Financial Consulting in Virtual Assets
- Managing a Portfolio of Virtual Assets
- Virtual Asset Broker / Virtual Asset Dealer
Entities seeking an SCA license must adhere to the SCA Rulebook, which outlines requirements related to technology, security, and AML (Anti-Money Laundering) compliance. A license from the SCA enables entities to operate throughout the UAE.
It is important to note that the SCA does not regulate stablecoins or payment tokens backed by the Dirham—this responsibility falls under the exclusive jurisdiction of the Central Bank of the UAE.
Central Bank of the UAE
The Central Bank of the UAE is responsible for regulating payment systems, including those involving cryptocurrencies. Recently, it introduced the Payment Token Services Regulation, focusing specifically on stablecoins backed by the Dirham. These regulations are critical in determining how cryptocurrencies can be used as a medium of exchange within the UAE.
The PTSR sets strict controls on activities and promotions related to Payment Token Services.
Payment tokens are classified into two categories:
Dirham Payment Tokens,
which can be used for any lawful purpose.
Foreign Payment Tokens,
which are restricted to the purchase of virtual assets or their derivatives.
Additionally, businesses in the UAE, including merchants, are prohibited from accepting virtual assets as a form of payment unless they are Dirham-backed Payment Tokens, within 12 months of the PTSR.
The PTSR also imposes restrictions on promoting certain types of tokens, such as algorithmic stablecoins and privacy tokens.
Companies providing payment token services can apply for one of three licenses from the Central Bank based on their business activities:
- Dirham Payment Token Issuer
- Payment Token Custodian and Transferor
- Payment Token Converter
Dubai – Virtual Assets Regulatory Authority
Dubai is the only emirate with a dedicated regulatory body for virtual assets, known as the Virtual Assets Regulatory Authority (VARA). VARA is responsible for overseeing virtual assets (VAs) and Virtual Asset Service Providers (VASPs), establishing the licensing, compliance, and operational requirements for entities operating in this space.
Before offering virtual asset-related activities in or from Dubai, whether to local residents or global customers where permissible, all VASPs and traditional businesses are required to obtain a license from VARA.
VARA offers several types of licenses for different activities:
- Advisory Services
- Broker-Dealer Services
- Custody Services
- Exchange Services
- Lending and Borrowing
- Management and Investment
- Transfer and Settlement
- Virtual Asset Issuance
A VASP can obtain licenses for multiple activities under one overarching license, except for Virtual Asset Custody Services, which must remain separate from other virtual asset categories. Any entity licensed for multiple activities must comply fully with the requirements for each service and maintain this compliance continuously.
VASPs that meet VARA’s licensing requirements must comply with four compulsory rulebooks on company, compliance and risk management, technology and information, and market conduct, as well as relevant activity-specific rulebooks.
Notably, only Fiat-Referenced Tokens issuers are required to obtain a VARA license. However, the VARA Regulations also require approval for token issuances that meet specific criteria, such as exceeding a certain transaction threshold in value, involving 150 or more entities, or yielding a particular benefit over a year.
Furthermore, even the issuers of utility tokens must register their Whitepaper with VARA at least seven (7) working days before its publication and must comply with all VA Issuance rules.
Licensing Costs
Financial Services Regulatory Authority (FSRA) for Abu Dhabi Global Market
In 2018, the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) amended its Financial Services and Markets Regulations 2015 (FSMR) to include provisions governing virtual asset activities. This made ADGM the first jurisdiction in the region to establish a comprehensive and clear regulatory framework for virtual assets. The scope of ADGM’s financial services activities was extended to cover virtual assets, including advising, dealing, arranging, trading, and custody services related to these assets. Since then, the FSMR and its associated rules and regulations have been regularly updated. ADGM has a comprehensive regulatory framework for virtual assets and related activities.
Under the FSRA’s regulatory regime, Virtual Assets (e.g., non-fiat virtual currencies and exchange tokens) are treated as commodities, which are not classified as specified investments under the FSMR.
Market intermediaries such as broker-dealers, custodians, and asset managers dealing with or managing virtual assets, as well as multilateral trading facilities that use virtual assets, must be licensed or approved by the FSRA. Only activities involving accepted virtual assets are permitted.
In contrast, Digital Securities (e.g., digital or virtual tokens with characteristics of securities) are classified as securities. Consequently, all financial services activities related to digital securities, such as dealing, trading, or managing investments in digital securities, are subject to the relevant regulatory requirements under the FSMR.
ADGM also recognizes Fiat Tokens (commonly referred to as stablecoins), which are fully backed by underlying fiat currencies and are treated as a digital representation of fiat currency within its regulatory framework.
These regulatory developments underscore ADGM’s commitment to maintaining a forward-thinking, robust, and adaptable framework for digital assets, positioning it as a leading jurisdiction for virtual asset innovation and regulation.
Dubai Financial Services Authority (DFSA) for Dubai International Financial Centre
The Dubai International Financial Centre (DIFC), regulated by the Dubai Financial Services Authority (DFSA), is one of the UAE’s key financial free zones, known for its strong regulatory framework that aligns with international best practices.
In 2024, the DIFC introduced Digital Assets Law No. 2 of 2024, which established a comprehensive legal framework for digital assets. This law defines digital assets as a type of property, providing clear rules for ownership, control, and transfer.
The DFSA maintains a list of Recognized Crypto Tokens and only the tokens on this list can be used within DIFC.
The DFSA outlines a detailed process for recognizing crypto tokens, ensuring they meet the criteria regarding transparency, security, and compliance with AML (Anti-Money Laundering) and CFT (Counter-Terrorism Financing) regulations.
Notably, as of September 2024,
the DFSA has only recognised
5 Crypto Tokens, namely
Bitcoin, Ethereum, Litecoin, Toncoin and Ripple.
Additionally, the DFSA issues licenses for companies providing services related to crypto tokens, including custody, exchange, advisory, and investment services. Businesses operating in these areas must comply with stringent operational, risk management, and reporting requirements set by the DFSA, ensuring a high standard of regulatory oversight.
