Regulators in the United Arab Emirates are taking preemptive measures to prevent bad actors’ illicit use of digital assets, rolling out new guidelines for industry participants.
The document, the brainchild of the National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee (NAMLCFTC), received key input from several financial regulators in the country, including the Central Bank of the United Arab Emirates (CBUAE).
As stated in a CBUAE press release, the framework seeks to limit the operations of unregistered digital asset providers in the UAE by urging financial entities to increase their monitoring of suspicious transactions. The guidance aligns with the existing regulatory framework against anti-money laundering (AML) and the Financial Action Task Force (FATF) rules.
“As our digital economy matures, our work on combating all kind of financial crimes intensifies through raising awareness of their risks and emphasizing the importance of compliance with relevant regulations and legislation to ensure the integrity of the UAE’s financial system,” said CBUAE Governor Khaled Mohamed Balama.
The new guidance requires financial service providers to conduct due diligence, adopt a measured approach to digital assets, and manage underlying risks associated with further asset classes. Notably, financial entities in the UAE are urged to report transactions suspected to be an attempt at sanctions evasion using digital assets.
The rules apply to designated non-financial businesses and Professions (DNFBPs) and registered digital asset firms, requiring them to comply with the FATF’s Report on Red Flag Indicators of Money Laundering and Terrorist Financing.
Apart from directives to financial entities, the guidance spells out stiff punishments for unregistered virtual assets service providers (VASPs), including civil and criminal liabilities against the entity and its directors. Financial entities that fail to adhere to the reporting requirements in line with the new guidance will face their share of regulatory action.
“Furthermore, reporting entities that demonstrate wilful blindness in their dealings with unlicensed VASPs and have weak AML/CFT and Counter Proliferation Financing controls may be subject to enforcement action,” read the guidance.
One step at a time
Despite the steps taken by the UAE to regulate digital assets, the country was placed in the FATF’s Grey List, fuelling a renewed attempt at achieving compliance with global best practices. With a new review scheduled for Q2 of 2024, pundits suggest that the UAE may be removed from the list, given the array of legal reforms since 2022.
Dubai and Abu Dhabi, two of the UAE’s leading financial hubs, have taken steps to regulate the activities of VASPs, with consumer protections at the core of their efforts. A combination of regulatory clarity, stiff punishments in the event of default, and incentives to attract global players have been cited as key in the UAE’s quest to exit the FATF’s gray list.
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