This was originally published in Arabian Business.
1. What are the current licensing requirements for virtual asset trading in Dubai?
The licensing of virtual asset activities in Dubai is governed by the Virtual Assets Framework ("VA Framework") introduced by the Dubai Virtual Assets Regulatory Authority ("VARA"). Under Dubai Law No. 4 of 2022 (the "Virtual Asset Law"), entities conducting virtual asset activities, such as operating platforms, exchanges, or custodial services, must secure a license from VARA. Article 16 of the Virtual Asset Law outlines specific activities requiring licensing, including:
- Operating virtual asset platforms.
- Exchanging virtual assets with fiat or other virtual assets.
- Providing custodial, safekeeping, or management services for virtual assets.
- Facilitating transfers of virtual assets or managing wallets.
- Issuing and trading virtual tokens.
The VA Framework also requires entities to comply with four mandatory rulebooks (company governance, compliance and risk management, technology and information, and market conduct) and activity-specific rulebooks tailored to the licensed activities. Entities operating without a VARA license face penalties under VARA's Administrative Order No. 2 of 2022.
2. What does this ruling mean for individuals who trade cryptocurrencies for personal purposes?
Individuals who engage in cryptocurrency trading strictly for personal investment are generally exempt from licensing under the Virtual Asset Law. However, compliance with Federal Decree-Law No. 20 of 2018 and its amendments (the "AML Law") remains mandatory. This includes:
- Avoiding activities that could be interpreted as commercial (e.g., acting as an intermediary or providing services to others).
- Trading only through VARA-approved platforms to mitigate risks.
- Maintaining records of transactions and reporting any suspicious activities.
The AML Law defines virtual assets as "funds" and includes cryptocurrencies under its scope, making even personal trading subject to AML obligations. Non-compliance with AML regulations can result in penalties ranging from imprisonment to fines of up to 5 million AED as per Article 14.
3. How does this ruling impact businesses or individuals trading virtual assets on behalf of others?
Businesses or individuals trading on behalf of others are categorized as Virtual Asset Service Providers("VASPs") under Article 15(a) of the Virtual Asset Law. These entities must:
- Obtain a VARA license corresponding to their activity type (e.g., exchange, custody, or broker-dealer services).
- Comply with the VARA rulebooks, including activity-specific regulations, and adhere to the Marketing, Advertising, and Promotions Regulations to avoid misleading promotions.
- Implement AML and Combating the Financing of Terrorism measures, including Know Your Customer ("KYC") procedures and ongoing transaction monitoring.
Failure to comply with licensing and regulatory requirements can lead to severe consequences, such as fines, operational suspensions, or criminal liability. VARA's grievance committee, established under Administrative Resolution No. 1 of 2023, provides a mechanism to address disputes or penalties issued under the framework.
4. What is the connection between this ruling and the Anti-Money Laundering Law?
The connection between the ruling and the AML Law pertains to the latest amendment introduced through Cabinet Resolution No. 24 of 2022. Article 16 BIS clearly stipulates that individuals must not engage in VASP activities without first obtaining the necessary licensing.
It is important to clarify that any business or individual engaged in trading virtual assets on behalf of others in Dubai without obtaining the necessary regulatory approvals is in violation of the applicable law.
5. What advice would you give to everyday cryptocurrency users or investors in Dubai who may be uncertain about whether their activities fall under "commercial enterprise" or "personal use"?
Everyday cryptocurrency users should evaluate their activities based on the following criteria:
- Intent and Scale: Trading for personal investment or portfolio management is typically personal use. Offering services or acting as an intermediary constitutes a commercial enterprise under many regulations, including UAE's Commercial Transactions Law.
- Use of Platforms: Ensure trading activities are conducted on VARA-licensed platforms to minimise risk.
- Compliance with KYC obligations: Individuals are encouraged to comply with KYC requests sent to them from time to time by any regulated platform used for personal trading.
- Seek Guidance: For unclear cases, consult legal or regulatory experts to determine whether a license is necessary.
To avoid regulatory risks:
- Do not advertise or promote services without appropriate licensing.
- Avoid pooling funds or managing assets for others, as this could be deemed a commercial activity.
- Regularly review updates to the VARA and SCA regulations to stay compliant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
