On February 28, 2022, the Emirate of Dubai enacted Law No. 4 of 2022 on the regulation of virtual assets (“VAL”) and created the Dubai Virtual Assets Regulatory Authority (“VARA”). By establishing a legal framework for businesses related to virtual assets, including crypto assets and non-fungible tokens (NFT), this landmark law reflects Dubai’s vision to become one of the leading jurisdictions for blockchain technology entrepreneurs and investors.
VAL excludes activities related to virtual assets in the Dubai International Financial Center (DIFC) of its scope. The DIFC, a leading free zone in the United Arab Emirates, has its own regulatory framework for virtual assets under the jurisdiction of the Dubai Financial Services Authority.
VAL defines (1) a “virtual asset” as a “digital representation of value that can be exchanged or transferred digitally or used as a tool of exchange or payment or for investment purposes” and (2) “virtual token as a “digital representation of a group of rights that can be digitally issued and traded through a virtual asset platform (a platform operated by a VARA-licensed virtual asset provider)”.
Key features of VARA include (but are not limited to):
- VARA will have legal status and financial and administrative autonomy, with independent and legal capacity to protect and regulate virtual asset service players. VARA will be affiliated with the Dubai World Trade Center Authority.
- VARA is responsible for regulating, supervising and monitoring the relevant issuance, offering and disclosure processes of Virtual Assets and NFTs.
- The VARA will cooperate with other federal agencies, including the Central Bank of the United Arab Emirates, publish a code of ethics, general policy and strategic plans, and be responsible for the application of the VAL. However, VARA will not regulate services related to virtual assets at the federal level. An entity that violates the VAL may be subject to certain penalties and fines, including withdrawal of authorization from VARA for six months.
- Any natural or legal person offering virtual asset services can only do so if they (1) have obtained a license from VARA, (2) operate in the emirate of Dubai and (3) have a business license from the competent commercial authority in the Emirate of Dubai. VARA’s mandate includes monitoring trading activity in virtual asset services to prevent price manipulation and to establish high standards of personal data protection.
- VARA should publish implementing decisions on the implementation of VAL, including a description of relevant activities, exempt virtual assets, licensing procedures and associated fees and charges, virtual asset custodians, digital wallets, tokenization and commerce.
VAL came into effect on March 11, 2022, when it was published in the Official Gazette of Dubai.