DUBAI/KARACHI: Rather than shy away from the somewhat “grey” world of crypto and virtual assets because of the UAE being on the Financial Action Task Force (FATF) grey list - which means it needs to address issues like money laundering and terrorism financing - Dubai is tackling the sector head on.
The Gulf city’s government created the Virtual Assets Regulatory Authority (VARA) last year in March. Its job is to develop regulations required for protection of virtual asset investors and to curb illegal practices, all the while keeping in mind that consumer protection is paramount.
VARA - described on its website as the world’s first independent regulator for virtual assets - has already developed four rulebooks which all virtual asset service providers (VASPs) must comply with in order to promote the emirate as a regional and international hub for the sector.
In July it was reported that Binance had become the first crypto trading platform to receive Dubai’s “operational minimum viable product” licence. Binance has so far completed three out of four stages of Dubai’s licencing procedure. The fourth involves obtaining “full market product” license, until which it cannot cater to mass retail investors, as per a report on cryptopotato.com.
In October, the FATF said the UAE is on track to be removed from the grey list - possibly in February next year - after making progress on compliance measures to combat money laundering.
Speaking at a media briefing attended by Business Recorder earlier this year, Deepa Raja, VARA’s Managing Director & Vice Chair, said the city has had to deal with concerns that it was risking getting into the FATF’s black list. Some wondered why it picked crypto, when it’s not “ideally the environment anybody wants to be participating in.”
But Raja says that diving headfirst into the space and creating regulations is “the only way you can get out from a cash-based economy” and create one that is “fully traceable, immutable and block-chain logged.”
She believes “the way to move from a grey list to a green list would be to facilitate transactions of this nature that are fully traceable on chain.”
She also said that at the time VARA was established, virtual assets were still a very “to be done’ sector, it wasn’t a criminalized enterprise it has become over the last six months or so. “So it was certainly one that every jurisdiction globally wanted to foster and nurture and see grow.”
It is also an integral part of Dubai’s grand D33 economic agenda, which includes plans to generate an annual contribution of AED 100 billion from digital transformation projects.
Raja, who is also CEO - Strategy and Future Insights at Dubai Economy and Tourism, explains that when Dubai was formulating D33, it looked at new economy sectors, and “everything from blockchain to metaverse to AI to naturally, virtual assets fell within that spectrum.”
She said they arrived at the conclusion that a solid foundation for VA was necessary in order for the other sectors to thrive.
“If you stop thinking about virtual assets as a vertical and start to see this as a horizontal, almost a transversal, if it didn’t exist as a base plate, none of the other (sectors) would be able to be attractable or grow as a consequence.”
Shutting down VASPs that don’t comply
At the time of the briefing, Raja said there were more than 800 companies that operated in the VA industry in Dubai without regulation.
But she explains that this is a global phenomenon, not one exclusive to Dubai: “There weren’t any regulations, and as a consequence, you’re going to have a lot of startups doing the activity.”
“And so a responsibility we’ve taken on ourselves is that by the end of the year, we want to make sure that all of these entities are either registered formally or have submitted the application to be licensed by VARA.” Otherwise they will be shut down.
In order to help them out, VARA has launched a legacy programme which gives the companies a transitional period to comply with all rules.
To sweeten the deal, VARA was giving them incentives, such as reduced capital requirement and reduced fees for the first year.
The reason for taking action is because “we do not want to go into a FATF compliance check (early next year) without at least having done a sense check about what’s in our ecosystem,” says Raja.
When asked by Business Recorder what role the FATF grey list played when it came to framing and forming regulations, Raja said: “The FATF considerations were absolutely there. The fact that we were on the grey list had very little to do with it.”
She explained that “whether or not we were on the grey list, we would have done it anyway.”
“I almost want to say we had stricter considerations because we wanted to make sure that we didn’t mess it up coming into the setup, and given that it was an easy one to target for a party coming in to audit us.
“So in that sense, it was almost beneficial because it kept us on our toes completely. There was no way we would have been allowed to release anything or licence anyone if this wasn’t sort of top notch.”
Copyright Business Recorder, 2023