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Crypto consumers need protection – and they can find it here

The UAE wants to be a global crypto hub and a flurry of laws have set it on the right path. Consumer safeguards are a vital part of this plan

Gate building at Dubai International Financial Centre. Its regulator has launched a consultation on crypto tokens

The UAE has built an encouraging ecosystem for its cryptocurrency industry in recent years. An influx of laws and regulations, at UAE federal and individual emirate level, are promoting and regulating the use of crypto assets, particularly Dubai’s Virtual Assets Law and Virtual Assets Regulatory Authority (VARA).

While the industry was largely unregulated a few years ago, these laws show the government’s keenness to reduce the risk of financial crime.

In late February, Dubai published Law No. 4 of 2022 regulating virtual assets in the emirate, which lays the foundations for a regulated “onshore” industry for virtual assets in Dubai. 

Law No. 4 established the crypto assets regulator for the emirate, the VARA, and its creation has been followed by the entry of international companies such as Binance, CoinMENA and FTX.

The VARA recently issued an administrative order regulating all direct and indirect marketing, promotions and advertising activities in respect of virtual asset business conducted in Dubai. The order has extra-territorial effect, so it applies to both domestic and foreign parties, whether or not they are licensed by the VARA, as long as they are targeting customers in Dubai. 

This measure demonstrates that protection of virtual asset consumers is key to a well-functioning and sustainable virtual asset industry in Dubai.

The Securities and Commodities Authority remains the UAE’s securities regulator and, before the VARA was set up, had taken steps to police this emerging market. Indeed, SCA’s authorisation is still needed when a virtual asset business falls within a traditional securities issuance/trading setting.

Similarly, to address the global demand, the Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) financial free zones have introduced comprehensive guidelines and a consultation paper to regulate digital securities and crypto tokens, respectively.

The Abu Dhabi guidelines are designed to address the full range of risks associated with digital securities, including money laundering and financial crime, consumer protection, technology governance, custody and exchange operations.

The Dubai Financial Services Authority’s consultation on crypto tokens applies to persons interested in marketing, issuing, trading or holding these tokens in or from the DIFC. These developments align with the DFSA’s goals of creating an ecosystem for innovation and a regime that is relevant to the crypto asset market.

Data-driven crypto players entering the UAE market must also learn to navigate its fast-changing data protection landscape, with laws and regulations across the financial free zones, a new onshore UAE federal data protection law and privacy regulations rolling out from the UAE Central Bank.

Over time, we expect more of the world’s largest crypto exchanges and other market players to establish in the UAE, giving rise to competition as well as a new customer base. 

As the UAE continues its efforts to establish itself a global crypto hub, regulators working toward eliminating regulatory arbitrage and making cross-border compliance easier must also keep a close watch on consumer protection and benefits.

Martin Hayward is a partner at Pinsent Masons and head of its technology, media and telecoms team in the Middle East. This article was co-written with partner Tom Bicknell and associate Barkha Doshi