As part of our ongoing expert series on global digital asset legal regimes, we analyze and evaluate different regulatory approaches for digital assets. This article covers developments in the United Arab Emirates, where regulatory alignment between Dubai’s dedicated Virtual Asset Regulatory Authority and the federal regulator is creating a smoother path to launching a compliant crypto asset offering.
Context and background
Similarly to Switzerland, the UAE was one of the earlier countries to embrace digital asset regulation. Since 2020, crypto asset service providers in the UAE have been regulated at the federal level under the supervision of the Central Bank of the UAE (CBUAE) and the Securities and Commodities Authority (SCA). The 2020 Crypto Assets Activities Regulation (CAAR) stipulates that all cryptocurrency businesses in the UAE must obtain a license from the SCA.
The definition of a crypto asset according to the CAAR is: “a record within an electronic network or distribution database functioning as a medium for exchange, storage of value, unit of account, representation of ownership, economic rights, or right of access or utility of any kind, when capable of being transferred electronically from one holder to another through the operation of computer software or an algorithm governing its use.”
The CAAR applies to any individual or entity that engages in the following services in the UAE:
(a) offers, issues, or promotes crypto assets;
(b) conducts crypto custody services, operates crypto fundraising platforms, or operates an exchange for crypto assets, and/or;
(c) provides any other financial activities in relation to crypto assets, which could include activities such as promoting or, marketing, or financial advice.
Digital asset regulation on different levels
However, regulation in the UAE can also happen at the level of individual emirates.
The Emirate of Dubai operates its own Virtual Assets Law, governed by the Dubai Virtual Asset Regulatory Authority (VARA.) VARA is the first regulatory agency in the world dedicated to the oversight of virtual assets. It’s a government body that was set up in 2022 for the purpose of enforcing Dubai’s Virtual Asset rules, which has a broad remit, including promoting Dubai as a destination in the digital asset sphere.
Crypto asset businesses in Dubai must register with VARA and comply with its requirements covering areas such as AML and prevention of market abuses. Many of VARA’s requirements mirror those in effect with the EU’s MiCA regulation, including segregation of customer assets, arrangements to prevent activities such as insider dealings or unlawful disclosures, and adequate monitoring measures.
It’s worth noting that the UAE is also home to two special economic zones that each operate their own regulatory regimes overseen by dedicated regulators. The Dubai International Financial Center is regulated by the Dubai Financial Services Authority, while the Abu Dhabi Global Market zone is overseen by the Financial Services Regulatory Authority. Both have issued regulations governing various types of crypto-related activities.
Thus, crypto asset businesses operating within the UAE, and particularly within Dubai under the supervision of VARA, have faced some complexity due to the multiple layers of regulation.
2024 regulatory alignment for digital assets
In September 2024, the SCA and Dubai’s VARA made a joint announcement regarding the rollout of a new framework for the supervision of virtual asset firms. The changes introduce a more streamlined process for obtaining a license to set up as a Virtual Asset Service Provider in Dubai and aim to bring better regulatory alignment to the UAE.
With this change, entities wishing to set up as a VASP in Dubai need now only obtain a single VASP license from VARA, which will provide default registration with the SCA. This makes the licensing process far less cumbersome, providing an easier route to setting up a regulated virtual asset offering in Dubai.
Other regulatory developments from the UAE this year include VARA tightening up its rules around the marketing of digital assets, requiring that VASPs include a risk disclaimer when advertising crypto-related products.
Digital asset market opportunities for VASPs
The relatively early move to regulate digital assets at the federal level, combined with Dubai’s favorable regime becoming even more accessible, means that the region has become an attractive opportunity for regulated institutions seeking to enter the crypto asset markets.
According to data compiled by Chainalysis in 2024, the UAE is the third-largest crypto economy in the MENA region, receiving over $30 billion in crypto in the twelve months leading up to July 2024. It’s outperformed only by two of its more populous neighbors, Turkey and Morocco. Furthermore, bucking the trend of many countries around the world, crypto activity in the UAE is growing across all transaction size brackets, signaling adoption across the spectrum of retail, professional, and institutional users.
Crypto-native VASPs have been eager to take advantage of the regulatory opportunity, with Tether, Ripple, and Binance all becoming licensed operators. However, banks and established financial institutions are also moving in. In September, Standard Chartered launched a digital asset custody service based in Dubai, while local bank Rakbank, one of the oldest in the country, teamed up with European crypto exchange Bitpanda to launch crypto services for its customers.
Launching a compliant VASP offering with Wyden
Wyden Infinity covers the entire end-to-end trade lifecycle of digital assets across all pre-trade, trade and post-trade use cases. It enables sell-side firms to build and maintain retail and institutional client offerings as well as internal prop-trading needs via a single platform, making Wyden Infinity the ideal choice for banks and brokers when building and scaling their fully compliant digital asset businesses.
One key advantage of the Wyden platform is that it offers true best execution through market-wide connectivity to over 55 trading venues and a smart order routing system that carries out price comparisons and order splitting to achieve the optimal execution terms. Transparency is built into the system via real-time pre- and post-trade data, and Wyden’s standalone accounting system offers a fully auditable transaction trail. Such transparency supports the market abuse measures required by the CAAR and VARA licensing requirements.
Integration with custody partners, such as Copper, Metaco (now Ripple), and Fireblocks, also means Wyden maintains an auditable record of transaction flows between custody and trading with automated liquidity management solutions that ensure an uninterrupted trading experience. Core banking integrations ensure smooth reconciliation and support the assimilation of a new digital asset offering into established workflows.
Contact us today for an initial discussion about implementing a compliant digital asset offering in your organization.
Please note that the above article does not constitute legal advice.