Monthly Insight: Crypto-assets in the UAE

Monthly Insight: Crypto-assets in the UAE

 

The Background

From aerospace to renewable energy to high tech, Dubai has a long tradition of leading global innovation and digital technology in the Middle East region. Therefore, it comes as no surprise that it has more recently joined a small group of nations, among them Australia, Switzerland and the USA, pushing for integrated blockchain technologies in everyday life.

The Dubai Blockchain Strategy, as part of the wider Emirates Blockchain Strategy 2021, aims to lead the application of blockchain technology to make the country the world’s first blockchain powered government and among the best countries for cryptocurrency projects. A blockchain powered government means higher government efficiency, stronger cybersecurity and a more business-friendly environment for crypto firms that wish to set up in the country.

Who can benefit from the Dubai crypto hype? And how.

The UAE Securities and Commodities Authority (SCA), the Federal Legislator, defines as Crypto-related services “all types and sizes of crypto businesses, from companies developing blockchain- enabled trading platforms, through to firms offering, issuing, listing, and trading crypto assets.”.

Investors
According to the legislation, crypto assets may be offered to:

a)    Qualified Investors:

  • Institutional investors who hold more than USD 20m in assets, or have a net turnover of USD 40m, or state governments, foreign governments, and international bodies.
  • Individuals who hold approximately USD 1m in funds or an annual income of no less than USD 270,000, and with whom a licensee can verify that they possess sufficient knowledge and understanding about the risks of investing in crypto assets.

 

b)    other people who do not meet the eligibility criteria as a Qualified Investor.

Important to note, is that the SCA and other regulatory bodies that govern the crypto landscape in the country do not provide for any passporting arrangements. Therefore, the fintech participants must limit their activities within the jurisdiction in which they are incorporated and obtain additional licensing in the case they wish to conduct any other activity in other jurisdictions.

Providers
Companies who wish to offer crypto-assets and related services must:

  • Be incorporated onshore within the UAE or within one of the UAE’s Free Zones such as Abu Dhabi Global Markets (‘ADGM’), Dubai International Financial Center (‘DIFC’), Dubai Multi Commodities Center (‘DMCC’) or Dubai Airport Free Zone (‘DAFZA’).
  • Receive a pre-approval from SCA, FRSA or DFSA.

There are ample choices for setting up a crypto related business in the UAE. Below is a list of the main options and their differences.

–    ADGM: The Financial Free Zone

Home to 2,989 licenses, ADGM is located in the heart of Abu Dhabi and extends across the entire 114 hectares of Al Maryah Island. ADGM is a business-friendly environment which operates in line with international best practices, recognized by major financial centers worldwide.

The legacy ADGM activity “Operating a Crypto Asset Business” relating to arranging, managing, and providing custody of crypto assets no longer exists. From now on, a business wishing to manage virtual assets in the ADGM will need to apply for a financial services permission for “Managing Assets the scope of which has been widened to include managing virtual assets.

–    DMCC: The Commodities Free Zone

Located across from the Dubai Marina district, DMCC is the regional leading centre for trading international commodities. DMCC promote and facilitate trade across a range of goods from gold, diamonds, and precious metals, to tea, food and now Cryptocurrencies. Home to major multinationals and start-ups, DMCC connects more than 19,000 businesses with the world-class services, leading infrastructure, and vibrant community they need to thrive and succeed.

Businesses dealing with crypto assets can now obtain bespoke licenses at the DMCC Crypto Centre which was launched to support businesses operating in the cryptographic and blockchain sectors. The DMCC already signed a Memorandum of Understanding with the SCA to develop a regulatory framework for businesses offering, issuing, listing, and trading crypto assets in DMCC.

–    DAFZA: The Newcomer

DAFZA is directly connected to Dubai International Airport (DXB), the world’s busiest international airport. It offers the ideal gateway to the Middle East and also unrivalled connectivity to Europe, and the Far East.
DAFZA is home to more than 1,800 registered businesses from over 20+ sectors and various industries, who benefit from a business-focused regulatory and tax environment that offers a range of world-class facilities.

Through its recent partnership with the SCA, DAFZA has expanded its business licenses and commercial activities which will be integrated with the services it already provides.

The bottom line

It is increasingly becoming apparent that the UAE has no intention to stay on the sidelines when it comes to the adoption of blockchain technologies, whether it is in government infrastructure, payment methods, or investment opportunities.

Like most assets, crypto assets come with a host of risks and vast potential of rewards. And like every new technology, it needs to be ‘supported’ by regulatory clarity and robust systems to ensure safety and security.

The UAE is a leading country in global innovation and digital technology, it is a country that wants to reform and embraces new technologies so, in our opinion, friendly legislation is to be expected when it comes to crypto assets.

 

If you are interested in knowing more, reach out to us to arrange a free consultation.

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