Dubai's Growing Crypto Industry: Licensing Requirements and Regulatory Framework

Dubai, one of the seven emirates of the United Arab Emirates (UAE), has been working towards becoming a hub for the digital asset industry. In February 2021, the Dubai Multi Commodities Centre (DMCC) released its latest regulatory framework for cryptocurrencies and other digital assets, outlining licensing requirements and guidelines for market participants.

The regulatory framework is aimed at attracting investment from crypto platforms and other businesses in the digital asset industry. The framework was released in response to the growing demand for digital asset investments in Dubai and the UAE, as well as the need for a regulatory framework to ensure the integrity of the market and protect investors.

Licensing Requirements

Digital asset companies wishing to pursue business in Dubai need to acquire a license from the UAE authority, as well as a license from Dubai’s Virtual Assets Regulatory Authority (VARA). The VARA license is mandatory for all digital asset businesses, including exchanges, custodians, and other service providers.

The licensing process involves a thorough review of the company's compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, as well as its adherence to consumer protection and cybersecurity standards. The regulatory framework also includes guidelines on record-keeping, risk management, and operational standards for digital asset businesses.

Companies that are already registered in the financial-free zones of the country, such as the DMCC and the Abu Dhabi Global Market (ADGM), are not required to apply for the two licenses. The financial-free zones offer financial incentives and independent regulatory frameworks to attract businesses, especially those in the financial sector.

Crypto Businesses in Dubai

Several crypto businesses have already received the VARA license or a preparatory license to test and develop their products and services in Dubai. Singapore-based exchange Crypto.com received a Minimum Viable Product Preparatory License from Dubai in March 2021, allowing it to test and develop its products and services for up to six months.

Hong Kong-based crypto custodian Hex Trust received the preparatory license in November 2020 and officially launched its operations in Dubai in February 2021. The company provides institutional-grade custody services for digital assets and aims to serve the growing demand for digital asset investments in the region.

Global exchange Binance also received a preparatory license in September 2020, but Dubai authorities asked for more information regarding its management before granting the operational permit. According to Bloomberg, Dubai authorities are seeking to ensure that Binance complies with local regulations and that its management structure meets their standards.

Dubai's Regulatory Framework for Digital Assets

Dubai's regulatory framework for digital assets is designed to provide a clear and comprehensive regulatory environment for market participants. The framework includes guidelines on licensing, AML and CTF compliance, consumer protection, and cybersecurity standards.

The framework also includes provisions for the supervision and enforcement of regulations. The Securities and Commodities Authority (SCA) was assigned to supervise the digital asset industry in February 2021, and the SCA is responsible for monitoring compliance with the regulatory framework and enforcing penalties for non-compliance.

The regulatory framework also includes guidelines on investor protection and dispute resolution. Digital asset businesses are required to provide clear and accurate information to investors and to have procedures in place for resolving disputes. The framework aims to protect investors and ensure that they have access to transparent and fair investment opportunities.