On February 28, 2022, the Government of Dubai took a leap forward by delving into the increasingly growing sector of virtual assets, with the Ruler of Dubai approval of the first legislation which regulates all kinds of activities, operations, and services related to virtual assets by virtue of Law No. 4 of 2022. This Law entered into force on 11 March 2022, and certainly demonstrates Dubai’s position as a leader in embracing innovative technology and becoming a key player in the virtual asset industry.
Pursuant to Article 3 of the new Law, the provisions of DVAL will apply to all virtual assets’ activities conducted only within the Emirate of Dubai including its free zones and Special Development Zones. The Law will not apply to Dubai’s International Financial Centre (DIFC), which has its own regulatory framework in this sector.
The DVAL establishes an independent public entity called Dubai Virtual Assets Regulatory Authority (VARA), which functions under the authority of Dubai World Trade Centre (DWTC). VARA will act as the only eligible virtual assets regulator that shall set out all rules aiming to ensure regulation, control, and supervision over all matters related to virtual assets in the Emirate. That being said, it is mandated to authorize all kinds of activities relating to virtual assets in Dubai, including all free zones and special development areas. VARA has its own legal personality and enjoys administrative and financial autonomy. It is also expected to cooperate with the UAE Central Bank, being the Federal regulator, in order to ensure financial stability in Dubai.
Defining Virtual Assets and Scope
Article 2 of this Law defines a virtual asset as the “digital representation of a set of rights that can be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes. This includes Virtual Tokens and any digital representation of any other value determined by the Authority”. This Article also provides a separate definition for virtual tokens being the “digital representation of a set of rights that can be digitally offered and traded through VA Platforms.”
DVAL does not expressly specify which types of virtual assets (such as cryptocurrencies and NFTs) shall be subject to the authorization and regulation of VARA. Therefore, future implementing regulations that should be issued by the Authority are expected to clarify this ambiguity.
Authorized Operations by VARA
VARA will be in charge of regulating trade operations of virtual assets and virtual tokens, authorizing virtual asset service providers and monitoring their services and activities, supervising transactions in order to prevent the manipulation of virtual asset prices, and ensuring data protection of investors and beneficiaries in the Emirate’s VA sector.
Nonetheless, DVAL prohibits any person in Dubai to engage in certain activities related to virtual assets without the authorization of VARA. These activities are the following: Operation and management of VA platforms and service providers, exchange services between different types of virtual assets or between virtual assets and other currencies, transfer services of virtual assets, custody and management services of virtual assets, VA portfolio services, and trading services of virtual tokens.
Therefore, any natural person or legal entity wishing to carry out any of the aforementioned activities, are obligated to firstly obtain authorization from VARA and then secure a license from the relevant commercial licensing authority in Dubai.
To sum up, despite that the VA industry is still in its development stage, the UAE has taken leading steps that will further pave the way for bigger achievements within this market. Dubai is one of the few jurisdictions to have enacted a legal framework governing virtual assets in the Arab region. However, much remains to be seen regarding the effective implementation of this newly born Law.