The United Arab Emirates (UAE) and its domestic regulators have taken a novel approach towards regulation of digital assets, prioritizing providing regulatory clarity and guidance to entities that want to engage in activities related to digital assets. This was demonstrated on July 10 when the Dubai Virtual Assets Regulatory Authority (VARA) suspended BitOasis’s conditional license to engage in activities related to digital assets. In contrast, U.S. regulators have organized around an approach that provides no advance notice to industry participants, opting instead to bring charges which rely on untested and novel legal theories.
The UAE has followed a different playbook, and the digital asset industry has taken notice. CoinDesk named two UAE cities as major crypto hubs in 2023, and to a large extent industry participants are voting with their feet. Scores of companies are either relocating wholesale to the country or opening satellite offices there. To understand why the UAE has been able to implement such a progressive and responsive digital assets regulatory regime, look no further than the UAE form of government. In short, the UAE is made up of seven emirates, with each emirate (i.e., state) empowered to legislate on any matter not within the exclusive jurisdiction of the UAE federal government.
Abu Dhabi and Dubai have each devised comprehensive regulatory frameworks for the regulation of digital assets which address many of the pitfalls of other jurisdictions’ approaches, not least of which involves defining the subject of regulation, digital assets. For example, the Abu Dhabi Global Market (ADGM) has provided clear guidance for classification and treatment of various digital assets, while VARA has defined digital assets with specificity. These policies stand in stark contrast with the U.S. approach – characterized by agency turf wars over who gets to regulate what, with industry participants stuck in the crossfire.
The UAE has also provided clear roadmaps regarding registration and licensure requirements for digital asset businesses looking to engage in regulated activities. To be authorized to carry on an ADGM-approved digital assets business, a business simply needs to apply for a Financial Services Permission and follow applicable laws. Those seeking a license to conduct business as a VARA-approved “Virtual Asset Service Provider” adhere to a similar process. As demonstrated by VARA’s suspension of BitOasis’s condition license, these permissive frameworks are not merely a blank check for industry participants to operate with impunity.
The UAE’s progressive approach to digital assets regulation has been a boon for the industry, providing clear guidance and a straightforward path to registration. The digital assets industry is in a constant state of flux, with years taking place in weeks, and norm-breaking a norm in and of itself – such an industry deserves dynamic regulation to match. The UAE seems to be on its way to achieving such a goal – whether the U.S. can match their efforts is to be determined.