UAE outlines proposed cryptoasset regulations

Out-Law News | 22 Oct 2019 | 11:47 am | 1 min. read

The United Arab Emirates’ (UAE) Securities and Commodities Authority (SCA) has published draft regulations governing cryptoassets, setting standards for a range of market participants.

The regulations will cover all aspects of the cryptoasset industry, such as safekeeping practices and compliance with financial crime prevention measures. The SCA has asked for feedback on the draft by the end of October 2019.

Cryptoassets are virtual, digital assets or tokens operating on a blockchain platform and protected by cryptography. The regulations would cover the promotion, offering and trading of cryptoassets in the UAE, including cryptoasset exchange and custody services.

The SCA said the emphasis within the regulations was on protecting investor interests through compliance of financial crime prevention measures, cryptoasset safe-keeping standards, information security controls, technology governance norms and conduct of business requirements for all market intermediaries.

The draft regulations set out the documentation and information required when cryptoassets are sold in the UAE as well as the custodial requirements for cryptoassets. They also outline fundraising standards and cryptoasset exchange rules and technology governance and standards.

Cryptoassets issued by the government or state-owned enterprises would be excluded from the new rules, and the regulations do not cover currencies or virtual currencies approved by the Central Bank, or securities held or administered electronically unless they qualify as a cryptoasset due to other features. The regulations also do not cover activities conducted within the UAE’s financial free zones.

The SCA said once the regulations were implemented, it would also be possible for market participants to request guidance on specific token issuance and regulatory requirements as a part of an e-services system launched by the regulator.

Financial services expert Tom Bicknell of Pinsent Masons, the law firm behind Out-Law, said the move reflected interest in cryptoassets across the Middle East.

“It seems the UAE is trying to position itself as a destination choice for cryptoasset investors.  This is in response to demand from market players in the region and follows hot on the Abu Dhabi Global Market’s (ADGM) footsteps when it became one of the first jurisdictions around the world to introduce a specific regulatory framework for cryptoasset activities,” Bicknell said. 

“It remains to be seen how joined up the SCA’s new ‘onshore’ UAE regime will be with the ADGM’s own regime,” Bicknell said.

The ADGM launched a regulatory framework for cryptoasset activities in 2018. Earlier this year the Central Bank of Bahrain (CBB) published final rules allowing for the regulation and licensing of dealing, advisory, and portfolio management services in accepted cryptoassets and as a cryptoasset exchange.