Reed Smith Client Alerts

In the wake of the release of the Dubai Virtual Assets Regulatory Authority’s (VARA) regulations earlier this year, which strengthened the UAE’s drive towards creating a complex regulating ecosystem for virtual asset service providers (VASPs), the UAE government issued Cabinet Decision No. 111 of 2022 on the regulation of virtual assets and their service providers (Cabinet Decision), which established the UAE Securities and Commodities Authority (SCA) as the federal virtual assets regulator in the UAE.

The Cabinet Decision empowers the SCA to supervise, investigate and inspect virtual asset platforms and operators, and all ancillary or related activities, at federal level in the UAE. The SCA has now announced that it has begun to receive licensing applications from companies wishing to become licensed VASPs.

Subject to certain limited exceptions (including activities carried on in financial free zones (which have their own regulators), as well as digital securities and digital commodities contracts and payment related virtual assets), UAE companies must be appropriately licensed by the SCA in order to be able to do virtual assets business in the UAE.

In Dubai, such companies would also need to obtain a VARA licence in order to trade in or provide virtual asset related services. While initially there was a certain amount of confusion as to the interaction between the SCA’s and VARA’s roles in regulating VASPs, the SCA recently released a formal announcement clarifying its position vis-à-vis VARA. In its announcement, the SCA clarified that all VASPs in Dubai, which would fall under VARA’s jurisdiction, would also need to obtain the SCA’s approval prior to commencing full market operations.