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Viewpoint by: Irina Heaver, cryptocurrency attorney.
Entrepreneurs who regard regulatory structuring as a vital component of their market entry strategy are the ones who flourish in the UAE. Regrettably, numerous entrepreneurs perceive licensing as a secondary consideration.
The UAE is not a region where one can bypass essential steps. It is, however, a territory where careful, well-prepared entrepreneurs reap rewards in terms of efficiency, transparency, and access to an exceptionally supportive ecosystem.
Contrary to the assumptions of some entrepreneurs, regulators are not the issue — disarray, inadequate planning, and unpreparedness are.
The crypto licensing environment in the United Arab Emirates can be quite complex, to the extent that even seasoned venture capitalists, serial entrepreneurs, and international law firms frequently misinterpret the regulatory regime.
Let’s clarify the circumstances.
One nation, two legal systems
The UAE is a federal nation consisting of seven emirates, functioning under two distinct legal systems.
The mainland legal system, referred to as the “onshore” regime, encompasses the entirety of the UAE territory and comprises over 45 economic free zones. These jurisdictions operate under the UAE’s civil law and are regulated by the UAE’s judicial framework.
The financial free zones, namely Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC), operate autonomously under English common law. They also possess their own regulatory authorities and judicial systems, distinct from the mainland’s legal framework.
Grasping this division is essential because the regulatory authority overseeing your crypto operations largely depends on the legal framework within which you elect to function.
One nation, five crypto regulators
Five different authorities oversee crypto and related activities, each with its own jurisdiction, responsibilities, and licensing structure.
On the mainland, the three pertinent regulators are:
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The Central Bank of the UAE (CBUAE): supervises activities concerning AED-denominated stablecoins, crypto payments, and remittances, and authorizes foreign stablecoins.
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The Securities and Commodities Authority (SCA): oversees crypto exchanges, broker-dealers, and token offerings resembling securities or commodity contracts.
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The Dubai Virtual Assets Regulatory Authority (VARA): regulates most virtual asset service providers (VASPs) operating within Dubai, excluding those situated in the DIFC.
Related: Dubai regulator approves Ripple’s RLUSD stablecoin
Within the financial free zones, there are two separate regulatory bodies:
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The Financial Services Regulatory Authority (FSRA): the financial regulator for ADGM, which established one of the most sophisticated regulatory frameworks for digital assets back in 2018.
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The Dubai Financial Services Authority (DFSA): the regulator for DIFC, adopting a cautious yet evolving approach to crypto assets.
This distinctive framework can be simultaneously advantageous and challenging. Selecting the incorrect regulator or failing to comprehend the functions of each authority may lead to wasted time, lost opportunities, or, in some cases, total licensing failure.
Select the appropriate regulator
The right jurisdiction hinges entirely on your specific business model. Here are a few typical scenarios:
Initiate a crypto exchange
Planning to become the next Binance? Prepare to navigate a demanding licensing process. VARA, SCA, or ADGM are potential options for you. Each has its own prerequisites, and none are suited for the faint-hearted.
Launch a stablecoin
If you’re considering challenging Tether in AED, then welcome to the adults’ table. You’ll be engaging with the Central Bank of the UAE.
Establish a tokenized RWA platform
Looking to transform luxury real estate, fine art, or a warehouse full of whiskey into blockchain-based assets? VARA’s newly introduced framework for asset-backed tokens is essential reading. And no, merely labeling it a “utility token” in a white paper won’t suffice here.
Start a crypto fund
Have capital to invest and a vision to support the next crypto unicorn? It’s time to become well-acquainted with ADGM’s FSRA. It boasts one of the most advanced digital asset frameworks available, but make no mistake, they expect solid compliance skills.
Launch a payment application
Looking to make significant financial moves? The Central Bank will be closely monitoring your activities. Do not expect a lenient approach regarding customer funds.
Attempting to do it all
Don’t. Founders frequently aim to construct their entire offering at once, which can lead to regulatory fatigue. It is far more effective to start focused — obtain one license, generate traction, then expand.
Additional best practices
Entrepreneurs who emphasize regulatory structuring as a fundamental part of their market entry strategy are the ones who prevail in the UAE.
Achievement requires a comprehensive regulatory evaluation from the outset, alignment of a business model with the appropriate jurisdiction and authority, and collaboration with legal professionals who genuinely comprehend the local landscape.
In the UAE, cutting corners is unacceptable. Founders who plan methodically and engage proactively with regulators are rewarded with efficiency, transparency, and access to a highly nurturing ecosystem.
Viewpoint by: Irina Heaver, cryptocurrency attorney.
This article is intended for informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are the author’s own and do not necessarily represent or reflect the views and opinions of Cointelegraph.
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