Dubai sets up watchdog as part of landmark digital assets law

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Dubai has introduced new legislation for the digital asset sector, joining other global hubs in bringing the nascent sector under their regulatory purview.

The emirate’s ruler Sheikh Mohammed bin Rashid Al Maktoum announced the promulgation of the new law on social media, touting it to be Dubai’s effort in being among the jurisdictions that shape the future of the burgeoning industry.

In addition to the new 56-page draft law, the Dubai ruler also revealed the introduction of a new regulator in charge of digital assets. The newly formed Virtual Assets Regulatory Authority (VARA) will oversee the industry in all emirate’s special development and free zones, except the Dubai International Financial Centre which has its own independent regulatory and judicial system.

“Adopting the virtual assets law and establishing the Dubai Virtual Assets Regulatory Authority is an essential step that establishes the UAE’s position in this sector, a step that aims to help the sector grow and protect investors,” Rashid Al Maktoum, who is also the vice president and Prime Minister of the United Arab Emirates (UAE) and its Minister of Defense, stated.

Today, we approved the virtual assets law and established the Dubai Virtual Assets Regulatory Authority. A step that establishes the UAE’s position in this sector. The Authority will cooperate with all related entities to ensure maximum transparency and security for investors. pic.twitter.com/LuNtuIW8FM

— HH Sheikh Mohammed (@HHShkMohd) March 9, 2022

VARA will organize and authorize virtual asset service providers (VASPs) and the trading of virtual assets, ensure the highest standards of protection for beneficiaries’ personal data, organize the operations of virtual asset platforms and portfolios and monitor transactions to prevent price manipulation.

VARA will have jurisdiction over digital asset exchange services, trading and custody services and transfer services.

For now, Dubai will refrain from regulating NFTs as part of the new law’s scope.

In the proposal, the emirate stated, “We are proposing to exclude NFTs from the scope of our current proposals on the basis there is no Financial Service being provided. However, this comes with a strong caveat that this exemption will depend on the characteristics of the NFT and its function, and not what terminology or marketing terms are used.”

Dubai, which will host the BSV Global Blockchain Convention on May 24-26, has been making efforts to regulate the digital asset sector for years, but most of these efforts have been fragmented, with many of its special economic zones making up their own set of rules.

In December 2021, the Dubai World Trade Center created a regulated digital currency hub which it said would enforce rigorous standards for investor protection, AML compliance and cross-border deal flow tracing.

The Dubai Financial Services Authority has also previously announced a regulatory framework for the industry, but it only catered to investment tokens.

The new regulations come amid reports that Russia is turning to digital asset exchanges in Dubai to liquidate billions of dollars as sanctions render most global financial services unavailable to the Eastern European country.

A report by Reuters revealed that as Russian nationals seek a safe haven for their fortunes, some are turning to digital assets to invest in real estate in the UAE. Others are seeking to turn their virtual money into fiat currency and stash it elsewhere.

One digital asset firm based in Dubai told the news outlet it has received a lot of queries from Swiss brokers asking to liquidate billions of dollars’ worth of digital assets as they are afraid Switzerland will freeze their assets. None of these requests had been less than $2 billion.

“We’ve had like five or six in the past two weeks. None of them have come off yet – they’ve sort of fallen over at the last minute, which is not rare – but we’ve never had this much interest,” one digital asset executive revealed.

Another real estate broker, whose firm accepts digital asset payments, said that they’ve never had as much business as they do now, with Russians making the bulk of their clients in recent weeks.

“We’ve been seeing a lot of Russians and even Belarusians coming to Dubai and bringing whatever they can bring, even in crypto,” he told the outlet.

Watch: BSV Stories – Episode 4: The Middle East’s Blockchain Race