UAE Prepares National Crypto Licensing to Embrace Fintech

The United Arab Emirates (UAE) is prepared to issue federal licenses for virtual asset service providers (VASP) by the end of the first quarter to attract some of the world’s biggest crypto companies, according to a government official.  

Binance Holdings, the world’s largest cryptocurrency exchange by trading volume, is among those considering imposing a more robust presence in the country. This nationwide licensing system for virtual-asset firms would improve the UAE’s competition with rival financial centers like Singapore and Hong Kong, which are also in the middle of creating fully regulated environments for crypto trading.  

As such, many of the nation’s economic free zones have already issued permits for VASPs, while Dubai Multi Commodities Centre has licensed 22. Meanwhile, Abu Dhabi Global Market has six, and Dubai Silicon Oasis Authority has at least one, according to a government report.  

However, Dubai International Financial Centre, which is the Middle Eastern hub for most Wall Street banks, has none. 

The country is taking a mixed approach to managing the licensing, and SCA will handle regulation with feedback from the central bank, while local financial centers can establish their day-to-day procedures around the licensing, one official said.  

To attract more business, the country completed a risk assessment on virtual assets in late 2021, involving 14 public-sector agencies and 16 private-sector actors. While there’s a “high risk” that VASPs may be used to engage in illicit finance schemes, the government elicited proper regulation rather than an outright ban, which can mitigate those threats, the report said.  

It is worth mentioning that Abu Dhabi considered the latest guidance from the Paris-based Financial Action Task Force (FATF) and the strategies employed in the U.S., UK, and Singapore. Opening the door to the sector reflects how the UAE embraces technology, an Emirates official said.  

Emirati authorities are trying to create a balance by promoting the business-friendly environment that made Dubai an attractive regional base for many of the world’s biggest financial firms and tech companies – while also pursuing direct concerns about volatility and financial crime that keep dogging the crypto industry. 

During some times, the FATF is set to decide whether to include the UAE on its so-called grey list of countries subject to more oversight for shortcomings in combating money laundering and terrorist financing.  

It is worth mentioning that the government also wants to build an ecosystem for crypto mining, an industry that’s attracted inquiry from environmentalists and lawmakers globally due to its high electricity consumption and the ensuing impact on greenhouse-gas emissions.