Licensing of activities with Cryptocurrencies in the UAE

Licensing of activities with Cryptocurrencies in the UAE

Obtaining a cryptocurrency license in the UAE is a crucial requirement for companies looking to operate in this sector. In this article, we will delve into the regulations surrounding crypto assets in the UAE and the licensing procedures for fintech activities.

Legislative Regulation of Cryptocurrencies in the UAE

The legal framework in the UAE is based on common law principles, influenced by Islamic Sharia. While all emirates adhere to federal laws, they also have their regulations governing various aspects of financial activities. The central financial regulatory bodies are the Central Bank and the Securities and Commodities Authority.

It's worth noting that each emirate has established special economic zones that possess a certain degree of independence from federal laws and emirate government regulations. Two SEZs stand out due to their distinct legal regimes:

• Dubai International Financial Center, with DFSA as the main regulator.
• Abu Dhabi Global Market, with FSRA as the main regulator.

Fintech holds a high priority for the UAE government, with numerous blockchain-related initiatives underway, often with other jurisdictions.

Since 2018, the UAE has established comprehensive regulations regarding cryptocurrencies, and these regulations are continually updated. They cover various aspects of company establishment and licensing, asset issuing, and listing. Presently, the DFSA regulates security tokens and other crypto assets.

Investment activity in the UAE is also governed by Federal Law No. 4 of 2000, which established the SCA as a federal regulatory body alongside the Central Bank. This law sets the fundamental rules for investment placement.

Ways to obtain a license in the UAE:

• Within the onshore zone of the Emirates (referred to as the “mainland”), where companies fall under the federal supervision of the SCA.
• In Dubai by registering a business within the DIFC.
• In Abu Dhabi within the SEZ ADGM.

The UAE Onshore Cryptocurrencies Regulation

In the onshore UAE, the regulatory oversight of financial activities and control of trading in the capital market fall under the joint responsibility of the Central Bank and the Directorate. As of November 2020, the SCA (Securities and Commodities Authority) Virtual Asset Statement came into effect, with its initial draft published in October 2019 as part of a public consultation process. This regulation is designed to be technologically neutral and comprehensive in its approach.

Key provisions of the SCA Virtual Asset Regulation include:

• Scope: The regulation applies to individuals and entities involved in various cryptocurrency-related activities, including the storage of cryptocurrencies, operating crypto exchanges, managing crypto assets, and conducting other financial activities related to crypto assets.
• Language of Applications: Regulated entities are allowed to submit applications in English, although an Arabic translation may be requested if needed.
• Asset Classification: The regulation defines and distinguishes between security tokens and utility tokens, outlining specific treatment guidelines for each category.
• Professional Investors: The regulation introduces a broader definition of “professional investors.” In the case of resident individuals, a professional investor is someone who demonstrates sufficient knowledge to make relevant investments. A professional investor has an annual income of at least 1 million dirhams per year or possesses a net worth of at least 4 million dirhams. Professional investors may benefit from exceptions to approval and disclosure requirements.

Legislative regulation of services related to cryptocurrencies in Dubai and Abu Dhabi

The Dubai Financial Services Authority prohibits companies from providing cryptocurrency financial services without a proper license. To put it simply, if you intend to create a cryptocurrency exchange in DIFC, advise on investments, securities and derivatives, you must obtain a license.

In Abu Dhabi, crypto assets are regulated by the Financial Services and Markets Regulations, which divide them into:

• cryptocurrencies
• security tokens
• fiat currencies backed tokens
• derivatives and funds
• other virtual tokens

Digital asset companies must be approved by the FSRA and act as financial services licensees.

If a crypto company conducts business with crypto assets classified as security tokens, these transactions must comply with the laws applicable to securities, derivatives, and funds. When fiat tokens are used in activities, pre-licensing is required.

Registration of a Crypto Exchange in the UAE

If you are planning to expand your business in the UAE, then you need to comply with numerous licensing requirements for activities related to crypto assets. Registration requirements depend on whether the operator offers crypto assets to individuals qualified as retail investors.

1. Your first step is to apply to the SCA for a special license to operate a cryptocurrency exchange in the Emirates.
2. To obtain a crypto license in the UAE, you must prove compliance with the following points:

• fault-tolerant systems;
• separation of assets;
• capital adequacy;
• effective AML control;
• client identification;
• verification of knowledge and skills in investing in cryptocurrency, etc.

Conclusion

The United Arab Emirates actively supports the development of Fintech. The top destinations for foreign crypto investors are DIFC, ADGM, DAFZA or SRTI Park free zones. You can also get a crypto license from the Emirates on the mainland.