Virtual Asset Licensing in UAE

The digital transformation has reshaped the sectors of UAE, including businesses and legal services. UAE has virtual assets that are regulated by different local authorities. There are licenses provided by UAE entities to ensure safety and legal compliance in the digital era. It is one of the greatest initiatives taken by UAE government. With the formation of the Securities & Commodities Authority (SCA) and the Virtual Assets Regulatory Authority (VARA), the UAE has established federal laws to validate licenses for virtual assets issued by these authorities. VARA was established under Dubai Law No. 4 of 2022, and VARA is the core authority for dealing, managing and regulating virtual asset and its activities inside Emirate of Dubai. However, DIFC is not the part of this.

UAE has created a dynamic legal framework under Cabinet Decision No. 111 of 2022, Federal Decree-Law No. 4 of 2022, and Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Countering Financing of Terrorism. Together, SCA (federal level) and VARA (Dubai-specific) provide a unified licensing path for Virtual Asset Service Providers (VASPs). Companies in Dubai virtual asset ecosystem now require VARA licensing.

Many companies in Dubai have made investments in virtual assets. However, they require VARA licensing along with which the SCA registration is done automatically. Companies operating outside Dubai shall apply directly to the SCA for registration. The lawyers in Dubai can assist companies with licensing and other procedures.

The decision makers and decision takers have to decide on the legal compliance of the virtual assets, very carefully. SCA and VARA have to play a significant role, as they are the licensing bodies. It is important to know that Virtual Assets Service Providers (VASP) are registered with VARA, whereas companies working outside Dubai should get a license from SCA.

• Cabinet Decision No. 112 of 2022

The Cabinet Decision No. 112 of 2022 authorizes VARA to provide licenses within Emirate of Dubai, whereas the SCA holds the primary control, all over the UAE.

• Federal Decree-Law No. 4 of 2022

The Federal Decree-Law No. 4 of 2022 validates VARA as a regulatory authority for the virtual assets in Dubai. The law has a clear understanding about existence of virtual assets and its operations.

• Federal Decree-Law No. 20 of 2018 (AML Law)

Anti-money laundering (AML) law, the VASPs should be careful to ensure zero financing for terrorism. They should report any suspicious activities and conduct independent audits.

• Federal Decree-Law No. 34 of 2021

When financial technology is increased then, cybercrimes are also increased. This federal law protects the residents from digital fraud and cyber swindles.

Under VARA, several VASPs come. These virtual assets can be provided through cryptocurrency as exchange services. Other categories include; virtual asset management, transfer services, brokerage, and custodian services. To get the VARA license, the applicant must follow the following steps:

• Have a legal registration of the business in the UAE.
• Have minimum paid-up capital as per category.
• Implementation of AML and CFT rules and systems.
• Cybersecurity shall be well maintained with corporate governance.
• Specific compliance officers shall be hired.

It is understood that either virtual assets have to be properly registered in the UAE, through VARA if within Dubai, or the SCA should register virtual assets if companies are operating in other emirates. The lawyers in Dubai are available to tell clients which authority they should consider for registering the virtual assets in all emirates.

Under the AML law, combating financing terrorism (CFT), there are rules that VASPs must follow:

• Special attention to customers with high-risk
• Suspicious activities of transactions shall be monitored closely and reported
• The consumer records shall be retained for at least 5 years
• Real-time data shall be accessible to the regulatory authorities

As the UAE has developed with time, cyber security shall be tightened with cyber laws. Considering the registration of virtual assets, VARA’s rulebooks have ways of recovery protocols for disasters, preventing invasion of privacy and data and multi-factor authentication. Anyone not complying with the VARA laws will have to revoke their license. The Dubai law firms assist individuals and companies in securing their virtual assets in the UAE.

• Corporate Structuring

There are companies who want to establish business in the mainland and some opt for freezones. The lawyers in Dubai can guide you about the land area for your business. These locations are affected by tax exposure, legal compliance, and access to the banking system in the UAE.

• Smart Contracts and Legal Liability

The smart contracts seem to be in the limelight, as they are made online. However, the smart contracts should align with the UAE contract law. Therefore, the scrutiny has to ensure legal and jurisdiction compliance.

The lawyers in Dubai provide the legal advisory services for VASPs, whereas Dubai law firms also support VASPs in different ways. The legal services provided to VASPs include:

• Drafting documents for registration and licensing
• Legal advice on token sale
• Regulations related to VARA, SCA, and Central Bank
• Maintaining partnerships and relationships with banks
• Dispute resolution
• Compliance with international expansion

The UAE is committed to the digital economy by introducing artificial intelligence, tokenisation for virtual assets, and handling legal disputes online. Moreover, the sandbox licensing programs have also supported crypto startups in the world of real estate. Legal professionals can assist clients with these trends with legal compliance.