Dubai is set to take a firm stance on private cryptocurrencies such as Monero (XMR) and ZCash (ZEC) as the Virtual Assets Authority has banned the use of these cryptocurrencies, as well as any activity related to them. The new cryptocurrency regulations, entitled “The Virtual Assets and Related Activities Regulations 2023,” were published on February 7th, 2023 and set out the regulatory framework governing virtual assets and all related activities in the Emirate.
The Dubai Virtual Assets Regulatory Authority (VARA) was established in 2022 and authorized by the Virtual Assets Regulation in the Emirate of Dubai (Dubai VA Act) to regulate virtual assets and virtual asset service providers (VASP). The regulations have set licensing and authorization requirements for VASPs and transmitters wishing to operate in Dubai.
The document defines “anonymity-enhanced cryptocurrencies” as “a type of virtual asset that prevents tracing of transactions or recording of ownership through distributed public ledgers and for which the Virtual Asset Service Provider (VASP) does not have technologies or mitigation mechanisms allowing traceability or identification of ownership.”
VARA has been granted full powers to make decisions and adapt laws relating to crypto-assets when it deems it necessary. The regulator may, in its sole discretion, classify or provide clarification or advice on any virtual asset, or type of virtual asset, as prohibited in the Emirate.
Cryptocurrency businesses must meet certain requirements before they can operate in the country. These relate to anti-money laundering and anti-terrorism, marketing regulations and market offenses such as insider trading and market manipulation. Companies that do not comply with the new regulations can face hefty fines, per violation, ranging from AED 8 million ($2.2 million) to AED 50 million ($13.6 million) for individuals and up to 15% of the annual income for a VASP.
In contrast to the new regulations, the UAE recently announced plans to use cryptocurrencies for trade in the future. Minister of State for Foreign Trade Thani Al-Zeyoudi stated that “cryptocurrencies will play a major role in UAE commerce in the future. The most important thing is that we ensure global governance when it comes to cryptocurrencies and cryptocurrency companies.” The UAE is focused on becoming a major center with crypto-friendly policies that also have sufficient protections in place.
The Importance of Traceability in Cryptocurrency Transactions
Cryptocurrency transactions are often criticized for their lack of traceability, which can result in the illicit use of these assets for illegal activities such as money laundering and terrorism financing. Anonymity-enhanced cryptocurrencies, such as Monero and ZCash, are particularly concerning due to the fact that they are designed to prevent the tracing of transactions and the recording of ownership.
The Dubai Virtual Assets Regulatory Authority (VARA) has recognized the importance of traceability in cryptocurrency transactions and has set out to ban the use of these cryptocurrencies, as well as any related activities, in the Emirate. The new regulations require cryptocurrency businesses to comply with anti-money laundering and anti-terrorism measures, marketing regulations, and market offenses such as insider trading and market manipulation.
The Consequences of Non-Compliance
Companies that do not comply with the new regulations can face hefty fines, per violation, ranging from AED 8 million ($2.2 million) to AED 50 million ($13.6 million) for individuals and up to 15% of the annual income for a VASP.
In conclusion, the Dubai Virtual Assets Regulatory Authority (VARA) has taken an important step in setting out the regulatory framework for virtual assets and related activities in the country. The regulations have clearly defined the licensing and authorization requirements for VASPs and transmitters, as well as the penalties for non-compliance. The focus is on ensuring that cryptocurrency businesses meet the anti-money laundering and anti-terrorism regulations, and adhere to the marketing regulations and market offenses such as insider trading and market manipulation.
While the recent ban on anonymity-enhancing cryptocurrencies such as Monero and ZCash may limit the freedom of some users, it is a necessary step in ensuring that the virtual asset sector operates in a safe and secure manner. The UAE is still focused on becoming a major center for cryptocurrency and is working to ensure that its policies are crypto-friendly while also providing sufficient protections.
It is clear that the country is committed to striking a balance between encouraging innovation in the virtual asset sector and ensuring that it operates in a regulated and secure manner. This can only be positive for the sector as a whole, as well as for the people of the UAE. The recent announcement is a significant milestone for the virtual asset sector in the UAE, and it is expected that the regulations will be well received by the industry.