Evolving Regulatory Framework of Virtual Assets

Bitcoin introduced the world to the revolutionary idea that a virtual asset could be converted into hard currency or used as tender. Cryptocurrencies offer users a decentralized, secure, and anonymous system through which they can store value. Some heralded this development as the beginning of a new system that would turn finance on its head, while others claimed this was a fad that would eventually pass. While the jury is out on crypto’s effect on modern finance, one thing is clear: crypto and other digital assets such as NFTs are here to stay.

Many in the crypto markets push against regulation on the idealistic belief that it is possible to remove governments from the global financial system. These arguments ignore the rationale behind the regulation of security and capital markets - which apply even more to volatile virtual assets.

The un-traceability of crypto transactions lets players move and launder illicit funds. It also allows platforms on the ‘dark web’ to buy and sell illegal goods and services. And the introduction of NFTs has shown up the ability of fraudsters to scam honest investors without repercussions.

There are also other concerns for the average investor. For one, the extreme volatility of blockchain assets has led to large, high-value fluctuations in the space of minutes. People must therefore be aware of the risks of virtual assets and best practices for operating on the market. Many countries have recently introduced or proposed regulations to mitigate some of these concerns. China has banned crypto currency trading, India is discussing it, and the United States recently introduced a new executive order outlining a strategy for dealing with crypto currencies.

Dubai has proved its central role in creating a business environment conducive to digital development and reducing entry barriers for investors by implementing the Regulation of Virtual Assets (Law No. 4 of 2022). This regulation has also created a new regulatory body called the Dubai Virtual Asset Regulatory Authority (VARA). VARA shall oversee all virtual asset trading in Dubai. Those wishing to participate in the market will require approval. In addition, entities wishing to engage in the minting, dealing, or storing of virtual assets in Dubai will have to establish a presence here. VARA will also monitor crypto transactions to safeguard against artificial price manipulation.

As per the regulation, the approved business activities shall include virtual assets and currencies, custody and management of virtual assets, virtual asset platform services, virtual asset portfolio services, virtual token offering and trading services.

This new regulation shall be applicable across the Emirate of Dubai including all free zones except the Dubai International Financial Center (DIFC).

Virtual assets are a new and exciting development in the world of global finance and the technology behind it has opened the door to many new opportunities. As with any new technology, its effects are still being discovered and widespread adoption has meant that its impact on the global economy is growing. Countries are introducing regulations with varied approaches. Dubai’s new virtual asset law is truly the first of its kind that will act as a model for other nations even as calls for a global framework by bodies such as the IMF are growing.

How can MBG help?

MBG’s virtual assets advisory team helps investors and companies to understand the feasibility of starting up a virtual asset company in the UAE. Our team provides a detailed feasibility report to help potential investors identify the most suitable jurisdiction to establish their virtual assets company and the relevant business activities. Our expertise allows us to ensure that your companies meet the regulatory requirements as prescribed by the regulatory authorities from time to time.