I INTRODUCTION TO THE LEGAL AND REGULATORY FRAMEWORK

The United Arab Emirates (UAE) has a developing legal system that has rapidly modernised in recent years. The overall legal system is a civil law system influenced by shariah (Islamic law), of which the major legal codes include the Civil Transactions Law, the Commercial Transactions Law, the Penal Code and the Commercial Companies Code. In addition to UAE federal law, each of the seven emirates of the UAE (Dubai, Abu Dhabi, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah) have their own laws and regulations in areas where there is no federal law. In the field of financial and capital markets, the UAE Central Bank and the Securities and Commodities Authority (SCA)2 are, however, the federal regulators.

Each emirate also has its own free zones, which have limited independence from the emirate and federal law that applies to foreign investment restrictions and customs. There are, however, two financial free zones established pursuant to the UAE Constitution and federal law that are entirely separate jurisdictions in the sense that they have a regime of civil and commercial laws separate from the remainder of the UAE. The two free zones are the Dubai International Financial Centre (DIFC), where the regulator is the Dubai Financial Services Authority (DFSA), and the Abu Dhabi Global Market (ADGM), where the regulator is the Financial Services Regulatory Authority (FSRA). The DIFC applies a common law system modelled on English common law, while the ADGM applies English common law itself. UAE federal criminal laws do, however, apply in the DIFC and the ADGM (e.g., the federal anti-money laundering laws). Where necessary, the onshore UAE, the DIFC and the ADGM are dealt with separately in this chapter.

Although the UAE presents blockchain and distributed ledger technology (DLT) as a government priority and has initiated various blockchain-related ventures, the regulation of virtual currencies in the onshore UAE and the DIFC remains limited. Although coins and tokens are not prohibited, the SCA and the DFSA have issued circulars to caution investors on virtual currencies, without, however, taking a firm regulatory position. Both the onshore UAE and the DIFC had adopted a wait-and-see approach; however, on 15 October 2019, the SCA issued a long-awaited draft regulation on virtual assets (the SCA Draft Virtual Asset Regulation) with a request for public commentary.3 At the time of writing, no regulation has come into force.

By contrast, the ADGM issued extensive regulation in 2018, which is regularly updated to keep abreast of global developments in blockchain regulation. The ADGM has consequently attracted significant interest by international industry players, particularly by those operating central virtual currency exchanges.4 The ADGM has also been proactive in the wider fintech regulatory space, having issued guidance on application programming interfaces5 and digital investment management ('robo-advisory') activities.6

II SECURITIES AND INVESTMENT LAWS

i Onshore UAE

In the onshore UAE, the UAE Central Bank and the SCA share responsibility for the regulatory oversight of the UAE's financial and capital markets. This includes the non-financial free zones, such as the Dubai Multi Commodities Centre (DMCC) and the Dubai Silicon Oasis (DSO).

Although the SCA announced on 9 September 2018 that it would issue regulation to govern initial coin offerings (ICOs) and determine the status of coins and tokens in mainland UAE, the SCA Draft Virtual Asset Regulation was not published until October 2019 and at the time of writing, no regulation has thus far been issued.7 This may be considered surprising given the enthusiasm professed for DLT and blockchain in the jurisdiction and the large-scale overhaul of the UAE's banking laws and its Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Framework in 2018 and 2019, which does not consider explicitly the status of virtual assets in the jurisdiction.

The SCA Draft Virtual Asset Regulation is drafted to be all-encompassing. It is to apply to anyone offering, promoting or issuing cryptoassets in or from the UAE or to persons in the UAE, as well as anyone offering crypto custody services, or operating a crypto exchange or a crypto fundraising platform and any other financial activity relating to cryptoassets.8 However, crucially, it specifically excludes the financial free zones from its scope, thus leaving the regulatory freedom of the DIFC and ADGM unfettered.9 The Regulation distinguishes between commodity tokens and security tokens, and regulates both, though the regulatory requirements are higher for security tokens. It subjects any security token offering or trading to the UAE securities laws and suggests that the SCA would issue guidance as to how to assess whether a virtual coin or token qualifies as a security token.10

However, even without the SCA Draft Virtual Asset Regulation entering into force, depending on the technology underlying or rights attaching to a coin or token, UAE securities, investment or financial laws may apply to a specific coin and token. Persons or entities issuing or dealing in or with coins or tokens, especially if the latter exhibit characteristics of securities, should exercise caution. In a circular in 2018, the SCA requested all issuers, intermediaries facilitating initial coin offerings and trading platforms to ensure that they comply with all applicable laws.11

Securities and related investments are primarily governed by Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and Market (the Securities Law),12 and regulations issued thereunder and relating thereto.13 The Securities Law established the SCA as a second federal regulator and includes basic rules on the offering of securities.14 Under the Securities Law, any securities or commodities market or exchange must be in the corporate form of a local public institution or public corporation and must be licensed by the SCA.15 This requirement was relaxed in 2014, permitting the listing of securities in private joint-stock companies on regulated exchanges.16 The licensing requirement also applies to brokers. The Securities Law and (most) regulations issued thereunder define securities as 'shares, bonds and notes . . . and any other domestic or non-domestic financial instruments accepted by the Authority'.17 In theory, this definition leaves room for the SCA to subsume coins or tokens within its own definition. The Law defines commodities as '[a]gricultural produce and natural resources extracted from under the ground and the seas after being processed and prepared for commercial use', which would not appear to cover virtual currencies. However, later regulation defines commodities to include 'and any other commodities traded in contracts'.18 Even without the SCA Draft Virtual Asset Regulation entering into force, most virtual coins and tokens may be characterised as commodities, where they do not exhibit characteristics of securities.

Highly relevant to trading platforms of virtual coins and tokens, the activity of market-making of securities requires a licence from the SCA. Market-making is defined as 'the activity which mainly depends on providing continuous prices for the purchase and sale of certain securities to increase the liquidity of such securities'.19 Where coins or tokens are considered securities, the provision to ensure liquidity of the token, for example through trading bots, may therefore potentially amount to a regulated activity in the onshore UAE.

ii DIFC

The DFSA, the DIFC's competent regulator, stated in September 2017 that it does not regulate digital coins or tokens and considers them to be high-risk.20 It then stated that it does not license any firms in the DIFC to carry out activities related to virtual currency investments. In October 2019, the DFSA sent an alert about 'MeleCoin' falsely being licensed in the DIFC.21 In its alert, the DFSA again referred to its September 2017 warning.22 In June 2020, as part as their Future Finance initiative, the DFSA cooperated with Deloitte Middle East to publish a paper on digital asset custody.23 The document includes a classification of coins and tokens adopted by the UK's Financial Conduct Authority. The publication may indicate that the DFSA is set to clarify the regulatory status of coin- and token-related transactions within the DIFC.

The core laws regulating licensable businesses in the DIFC and administered by the DFSA are:

  1. the Regulatory Law 2004;
  2. the Markets Law 2012;
  3. the Law Regulating Islamic Financial Business 2004;
  4. the Collective Investment Law 2010; and
  5. the Investment Trust Law 2006.24

The DFSA has issued a rulebook (the DFSA Rulebook) that contains subsidiary legislation made under the Regulatory Law 2004 by the board of directors of the DFSA.25

The DIFC prohibits people from performing financial services, including dealing in and advising on investments such as securities and derivatives, unless authorised to do so.26 An activity constitutes a financial service under the Regulatory Law 2004, subject to various exemptions, if it amounts to:

  1. accepting deposits;
  2. providing credit;
  3. providing money services;
  4. dealing in investments as principal;
  5. dealing in investments as an agent;
  6. arranging deals in investments;
  7. managing assets;
  8. advising on financial products;
  9. managing a collective investment fund;
  10. providing custody;
  11. arranging custody;
  12. effecting contracts of insurance;
  13. carrying out contracts of insurance;
  14. operating an exchange;
  15. operating a clearing house;
  16. insurance intermediation;
  17. insurance management;
  18. managing a profit-sharing investment account;
  19. operating an alternative trading system;
  20. providing trust services;
  21. providing fund administration;
  22. acting as the trustee of a fund;
  23. operating a representative office;
  24. operating a credit rating agency;
  25. arranging credit and advising on credit; and
  26. operating a crowdfunding platform.27

The DIFC also prohibits financial promotions, which covers any communication 'which invites or induces a Person to (a) enter into, or offer to enter into, an agreement in relation to the provision of a financial service; or (b) exercise any rights conferred by a financial product or acquire, dispose of, underwrite or convert a financial product'.28

While there is extensive room for virtual currency transactions to fall within financial services or promotions, the statement of the DIFC indicates that at this point in time it does not consider the issuance of or dealing in digital coins and tokens to fall within its extensive regulatory framework.

iii ADGM

The competent regulator in the ADGM is the FSRA. In summer 2018, the FSRA issued a far-reaching framework regulating the operation of what it then called 'cryptoasset' businesses by amendment of the Financial Services and Markets Regulations (FSMR)29 and the provision of detailed guidance notes.30 The framework is regularly updated to keep abreast of global crypto-related developments; it was last amended in February 2020,31 along with corresponding guidance documentation.32 One notable change is renaming 'cryptoassets' to 'virtual assets' in line with the Financial Action Task Force (FATF) nomenclature.

Pursuant to the 2020 changes, the FSMR divides virtual coins and tokens into digital assets regulated by the FSRA on one hand, which includes virtual assets (such as non-fiat virtual currencies including Bitcoin, Ether), digital securities, fiat tokens (fully backed by fiat), and derivatives and funds (i.e., derivatives over any digital assets and collective investment funds investing in digital assets), and other digital tokens (e.g., utility tokens) on the other hand.33 Only the latter remain unregulated.

The FSMR defines a 'virtual asset' as a means of digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account or a store of value, or all three, but does not have legal tender status in any jurisdiction.34 From a regulatory policy perspective, the FSRA treats virtual assets as commodities and therefore not as specified investments under the FSMR. Derivatives of virtual assets are treated as commodity derivatives, and therefore as specified investments under the FSMR.35 Even though not all virtual assets are specified investments, any market operator, intermediary or custodian dealing in virtual assets is required to be approved by the FSRA as a financial service permission holder in relation to the applicable regulated activity.36

Where the FSRA classifies digital assets as digital securities or derivatives or collective investment funds of virtual assets, dealing in them and their issuance must fully comply with the provisions applying to securities, derivatives and funds as set forth in the FSMR and ancillary rules issued by the FSRA.37 To clarify its treatment of digital securities, the FSRA issued new guidance on the regulation of digital securities activities in February 2020.38 The guidance defines 'digital securities' as digital assets with the economic and legal features and characteristics of securities.39 The guidance seeks to clarify digital securities-related financial services activities within the ADGM, in both a primary and secondary market context, as well as tokenised security offerings.40

Where fiat tokens are involved, activities must be licensed and regulated as providing money services under the FSMR.41

III BANKING AND MONEY TRANSMISSION

The Central Bank is the UAE's banking, credit and monetary regulator, and:

  1. provides general regulation of banking-related matters;
  2. oversees the issuance of currency;
  3. supervises banking and other licensable financial activities;
  4. advises the government on financial issues;
  5. maintains foreign exchange reserves; and
  6. acts as a bank for the government and other banks in the UAE.

In September 2018, the UAE government overhauled its financial service and banking laws through the issuance of Federal Law No. 14 of 2018 concerning the Central Bank and Organisation of Financial Institutions and Activities (the Financial Services Law).42 The Financial Services Law replaced Federal Law No. 10 of 1980 concerning the Central Bank, the Monetary System and the Organisation of Banking as the main legal framework for banking in the UAE.43 The law regulates financial services within and from the UAE as well as the proceedings of the Central Bank. Despite its recent issuance, the Financial Services Law does not refer to virtual coins or tokens.

In January 2017, the Central Bank issued the regulatory framework for stored values and electronic payment systems (the Stored Value Regulation) to regulate different types of electronic payments and stored value.44 The Stored Value Regulation applies in the UAE but does not apply in the DIFC and the ADGM. The Regulation defines virtual currencies as 'any type of digital unit used as a medium of exchange, a unit of account, or a form of stored value'.45 The definition goes on to stipulate that virtual currencies are not covered by the Stored Value Regulation, but confusingly also suggests that their usage (and any transactions with them) is prohibited.46 In February 2017, the Central Bank Governor reportedly clarified that it is not prohibiting virtual currency transactions, and that they do not fall under the Stored Value Regulations.47 In November 2019, the UAE Central Bank announced that it was setting up a FinTech Office to compete with the sandboxes and initiatives in the DIFC and the ADGM. The office is also set to examine cryptocurrencies.48 Despite the SCA Draft Virtual Asset Regulation published in October 2019, the Central Bank governor is reported to have noted then that 'cryptocurrency is a big issue now and there's a lot of debate . . . we at the central bank are not supportive of cryptocurrencies'.49

In the past, local banks in the UAE have adopted inconsistent and changeable restrictions on remitting funds to or receiving funds from cryptocurrency exchanges or other businesses in the ecosystem, typically without prior notice. The basis for such restrictions is typically the know your customer (KYC) and anti-money laundering (AML) obligations applicable to banks (as further considered in Section IV). In May 2018, BitOasis, a virtual currency exchange serving UAE customers, suspended fiat-to-crypto transactions on its trading platform because of issues with its bank.50 In June 2018, the company was able reinstate that feature.51 As is the case elsewhere in the world, UAE banks have hesitated to open bank accounts for cryptocurrency blockchain businesses. This position has improved significantly, however, as UAE banks are studying blockchain solutions and integrating them into their own business with great vigour, or are at least considering doing so.52

IV ANTI-MONEY LAUNDERING

The UAE has enacted numerous laws at the federal level to prevent and punish money laundering and the financing of terrorism. In the course of 2018 and 2019, and just in time for the FATF evaluation of the UAE's AML/CFT regime as part of its second mutual evaluations of Member States in the Middle East and North Africa, the UAE tightened its AML regime considerably. The updates enshrine the risk-based approach to AML/CFT in the UAE in line with international standards. The main piece of legislation is Federal Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (the New AML Law)53 together with Cabinet Resolution No. (10) of 2019 Concerning the Executive Regulation54 of Federal Law No. 20 of 2018 (the AML Executive Regulation).55 The New AML Law and the AML Executive Regulation apply in all emirates, including the DIFC and ADGM. The New AML Law repealed the older Federal Law No. 4 of 2002 concerning Combating Money Laundering and Terrorism Financing Crimes. The overhaul of the UAE's AML/CFT regime went hand in hand with the issuance of the Central Bank Law complementing the New AML Law.

The New AML Law defines the crimes of money laundering and terrorist financing and details the sanctions for such activities. Additionally, Law No. 7 of 2014 on Combating Terrorism Offences (the CTO Law), which was not repealed by the New AML Law, addresses the combating of terrorism crimes.56

The main money laundering offence is defined in Article 2 of the New AML Law. The offence renders a person a perpetrator of money laundering who:

  1. conducts any transaction aiming to conceal the funds' illegal source;
  2. conceals the true nature, origin, location, way of disposition or ownership of rights with respect to the proceeds of a transaction;
  3. acquires, possesses or uses the proceeds upon receipt; or
  4. assists the perpetrator of the office to escape punishment.

Crucially, it is not required to prove the illicit source of the funds to convict a person for money laundering. It is, however, only money laundering if the person is fully aware that such funds are derived from a felony or a misdemeanour.

For the purposes of virtual currencies, funds refer to any assets whatsoever including assets in digital or electronic form.57 Virtual currencies do fall within the scope of the UAE's AML/CFT regime.

Sanctions for money laundering include prison sentences of up to 10 years, monetary fines for individuals of between 100,000 dirhams and 5 million dirhams. Where a representative of a legal person commits any of the New AML Law's money laundering offences, monetary fines range from 500,000 dirhams to 50 million dirhams.58 Where the entity is convicted of terrorist financing, it is dissolved. In all cases, tainted funds are to be forfeited or, where this is not possible, equivalent funds seized.59 Forfeiture also applies to virtual currencies. Again, while cryptocurrencies are not specifically mentioned in the legislation, any virtual funds will be considered assets the court may confiscate if those funds are tainted by money laundering. Other offences include intentionally failing to report a suspicious activity or to provide additional information upon request, deliberately concealing information60 and tipping off.61 Failing reporting duties because of gross negligence also attracts prison sentences or fines, or both.62 Breaches by obliged entities may attract penalties ranging from warnings, revocation of licences, fines to arrest of responsible personnel.63

The New AML Law broadly applies to financial institutions, and in contrast to previous regulation, now also explicitly designates non-financial businesses and professions and non-profit organisations as obliged entities.64 The term 'financial institutions' includes anyone who does any of the following on behalf of a customer:

  1. receives deposits and other funds that can be paid by the public;
  2. provides private banking services, credit facilities, cash brokerage services, currency exchange and money transfer services, stored value services, electronic payments for retail and digital cash, and virtual banking services;
  3. conducts financial transactions in securities, finance and financial leasing;
  4. issues and manages means of payment, guarantees or obligations;
  5. trades, invests, operates or manages funds, option or future contracts, and exchange rates;
  6. conducts interest rate transactions, other derivatives or negotiable financial instruments;
  7. participates in issuing securities and providing related financial services;
  8. manages fund portfolios;
  9. manages saving funds;
  10. prepares or markets financial activities;
  11. conducts insurance transactions; or
  12. conducts any other activity or financial transaction determined by a supervisory authority.65

Designated non-financial businesses and professions include brokers when they conclude operations for the benefit of customers concerning a real estate transaction, dealers in precious metals or stones in any related transactions of 55,000 dirhams or more, lawyers, notaries and accountants when preparing, conducting or executing financial transactions for clients in respect of certain transactions, and providers of corporate and trust services or anyone so determined by a supervisory authority.66 Non-Profit organisations include 'any organised group, of a continuing nature set for a temporary or permanent time period, comprising natural or legal persons as well as not-for-profit legal arrangements for the purpose of collecting, receiving or disbursing funds for charitable, religious, cultural, educational, social, communal or any other charitable activities'.

The definitions are wide and non-exhaustive. The definition for activities rendering an entity a financial institution includes the provision of 'digital cash', without any further explanation as to whether this definition includes any or all forms of crypto or whether only fiat-like tokens such as stablecoins, particularly those pegged to or backed by a fiat currency67 are caught by the definition. However, the definition of assets taken together with the scope of obliged entities is wide enough to cover establishments dealing in or with virtual currencies, including blockchain ventures structured as foundations.

The New ALM Law and its Executive Regulation also expands the powers of institutions, units and committees charged with supervision and enforcement of the UAE's AML/CTF regime.68 These include, among others, the Central Bank, which operates the Financial Intelligence Unit and is to receive suspicious activities report filings from obliged entities, the DMCC Authority within its free zone, the DFSA in the DIFC and the FSRA in the ADGM.69

In June 2019, the UAE government announced that regulated entities, including financial institutions, would be required to use 'goAML', a UN-developed software platform, to file any suspicion activity report of money laundering to the Central Bank's Financial Intelligence Unit.70 The initiative underscores the UAE's commitment to meet international best standards in AML and CTF and digitise its economy.

The SCA Draft Virtual Asset Regulation refers to the New AML Law and regulations, but also includes additional AML/CFT provisions,71 such as the need to have a robust compliance framework, including KYC, and ongoing AML monitoring in place. The proposal also proposes that deposits and withdrawals may only be made from and to a designated bank account in the name of the client with an authorised financial institution in the UAE or a foreign financial institution explicitly signed off by the SCA.72 Crucially, the SCA Draft Virtual Asset Regulation suggests that a cryptoasset, which cannot be adequately traced, may not be used to fund accounts or make transactions through a licensed person, such as a SCA-licensed crypto exchange.73 This would potentially exclude privacy coins, such as Monero, Zcash or Dash from being offered in the onshore UAE.

i DIFC

The New AML Law, the CTO Law and their implementing regulations apply in the DIFC by virtue of Article 3 of the Regulatory Law. Violations of the mainland UAE AML/CTF regime may also be punished in the DIFC.74 Additionally, the DIFC has its own AML/CFT regime contained in Chapter II of Part IV of the DIFC Regulatory Law and the Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Module (the AML Rules) of the DFSA Rulebook, last updated in February 2020. Until the issuance of the New AML Law in mainland UAE, the DIFC regime went beyond UAE requirements, but is now largely in line with them.75

The AML Rules apply a risk-based approach to authorised firms (other than credit rating agencies), authorised market institutions, designated non-financial businesses or professions, and auditors. If a blockchain or virtual currency business were licensed by the DFSA, it would be obliged to comply with its AML Module, which includes extensive customer due diligence and continuing AML monitoring. Decentralised exchanges, known as DEXs, may have difficulty complying.

ii ADGM

The mainland UAE AML/CTF regime also applies in the ADGM. Like the DIFC, the FSRA maintains an AML Rulebook, which complements the federal regulations and puts detailed requirements on regulated entities, including for risk-based KYC and AML controls.76 The FSRA overhauled the ADGM's framework in 2018 and 2019 (with limited changes in February 2020) to bring it in line with the New AML Law and implementing regulations.77 Further updates were made in February to implement FATF guidelines. The Rulebook applies to all FSRA-regulated entities, including those regulated under the 2018 and follow-on amendments to the FSMA relating to virtual asset businesses.78 In line with other jurisdictions, the ADGM requires the provision of detailed and comprehensive virtual asset compliance policies and the appointment of a money laundering reporting officer responsible for overseeing the authorised person's compliance with the AML Rulebook.79

V REGULATION OF EXCHANGES

i Onshore UAE

At the time of writing, the SCA has not issued any regulations specifically addressing cryptocurrency exchanges and no cryptocurrency exchange fully operates out of the onshore UAE. BitOasis, which was marketed as the 'first cryptocurrency exchange in the Middle East', was originally incorporated as an entity in the DSO, a Dubai free zone. BitOasis thereafter transferred to an entity incorporated in the British Virgin Islands.80 It is now understood to be seeking licensing in the ABGM as an operator of a multilateral trading facility for virtual assets, where it has already incorporated an entity.81 The regulatory uncertainty in operating in the onshore UAE is also reflected in the issues faced by the crypto exchange BTSE, which had previously stated that it was regulated in the onshore UAE, where it has companies licensed as commercial brokers82 and payment service providers83.84 Following enquiries by The Block, one of the blockchain and crypto industry's most respected media outlets, the UAE Central Bank is stated to have denied that BTSE was licensed there for its crypto-related activities.85 Further, as The Block reported, the UAE Department of Economic Development also denied that BTSE was allowed to operate a crypto exchange with its licences.86 BTSE thereafter announced that it was moving to the British Virgin Islands. BTSE claims to have been advised by the SCA regulator at the time of incorporation of its companies that the onshore UAE crypto framework was forthcoming within a year, and its licences would suffice in the interim.87

The SCA Draft Virtual Asset Regulation, if enforced, would clarify the situation for crypto exchanges by requiring them all to be licensed by the SCA. The Regulation defines operating a cryptoasset exchange widely as 'any platform that publishes live prices, brings potential buyers and sellers together (regardless of whether the resulting transaction is executed on the platform), offers order matching services, operates a trading engine or order book, executes or settles cryptoasset trades, or is otherwise substantively being held out as a market place for crypt assets'.88 The definition would potentially cover decentralised protocols that do not take custody of a client's virtual assets as well as messaging boards that bring buyers and sellers together. Moreover, any virtual coin or token, whether a security token or not, could only be offered for trading on a crypto exchange, if authorised to do so by the SCA. Exchanges are only to be open to persons 'who are (i) able to demonstrate a track record of regularly investing in cryptoassets . . . or (ii) accessing the exchange to acquire or sell cryptoassets solely in connection with exercising their relevant utility'.89 In its current form, the requirement appears onerous. Authorisation requirements are listed and drafted to vary depending on whether the exchange is open for retail investors or not.90 Exemptions may, however, be available – for example, where an exchange is only open to qualified investors or where an exchange 'permit[s] automatic settlement onto a distributed ledger'.91 The latter requirements would need to be clarified to consider whether certain decentralised protocols may potentially be able to operate without being licensed by the SCA. Although various aspects of the SCA Draft Virtual Asset Regulation mirror the ADGM framework, in its current form, it lacks clarity and is not as business-friendly compared with the ADGM framework.

While the SCA has been slow to offer a home to virtual asset-related businesses, the DMCC already announced in December 2017 that it added proprietary trading in crypto commodities as a licensable regulated activity under Activity No. 6599-92.92 The DMCC has previously stated that it considers virtual currencies a commodity, and therefore considers activity concerning them to be within the free zone's jurisdictional and regulatory scope. This licence is restricted to the buying and selling of crypto commodities on a licensee's own account and thus does not allow the holder of the licence to act as a cryptocurrency exchange. However, the licence appears to be suitable for the operation of trading bots that ensure liquidity on a trading platform. To receive a licence, an applicant must have a minimum issued share capital of 50,000 dirhams, present a business plan and adequately reply to a questionnaire. In 2017, the DMCC issued such a licence under DMCC-362053 to Regal RA DMCC (Regal), a precious metal trader incorporated in the DMCC.93 Regal provides physical (cold) storage of virtual currencies it considers commodities on behalf of clients in its headquarters' vault.94 In May 2018, Connect Blockchain DMCC also received a proprietary trading in crypto-commodities licence.95

In early 2020, the DMCC entered various partnerships, including with CV VC AG, to further develop the blockchain ecosystem in the DMCC, akin to Switzerland's Crypto Valley.96 It is therefore possible that the DMCC will expand its crypto-related licence offering in the future.

ii DIFC

Although the DIFC is home to NASDAQ DUBAI, one of the largest stock exchanges in the Middle East, and Dubai Mercantile Exchange, a major energy futures and commodities exchange, the DFSA has thus far not issued regulations specifically addressing cryptocurrency exchanges. Nor has it issued any full licences to businesses operating to that effect. Operating an exchange, a multilateral trading facility or an alternative trading platform are, among other things, licensable activities in the DIFC, and are regulated. However, given the DFSA announcement that it does not currently regulate tokens or coins, operating a virtual currency platform does not appear to fall within any such definition. In 2019, the DFSA's regulatory sandbox, which issues 'innovation testing licences', was reported to have issued such a licence to TokenMarket Capital Limited (now Likvidi Securities Ltd) to operate as a Category 4 adviser for issuers of or investors in security token offers in or from the DIFC. Innovation testing licences are usually given for six to 12 months.97 The company aimed to establish a DFSA-licensed and regulated authorised market institution to operate a tokenised securities exchange in or from the DIFC.98 At the time of writing, the company's licence was listed as not renewed on the DFSA public register.99 The 2019 cohort of the DIFC's FinTech Hive included several start-ups that indicated that they use blockchain technology in their tech offering.100 The development shows that the DIFC is no longer hesitant to engage with crypto and blockchain businesses and may, in due time, adapt its regulatory regime to explicitly account for crypto businesses including virtual asset exchanges.

iii ADGM

In contrast to the onshore UAE and the DIFC, the ADGM has passed explicit laws to regulate cryptocurrency exchanges under its virtual asset framework first issued in June 2018101 and last updated in February 2020.102 Any crypto exchange, both fiat-to-crypto and crypto-to crypto, must become an authorised person licensed as a financial service provider conducting a regulated activity in relation to virtual assets.103 The relevant regulated activity is operating a multilateral trading facility, an organised trading facility or a recognised investment exchange and, where the exchange holds the private keys of its users, also providing custody.

The updated FSMR now subsume virtual asset-related financial activities in the same categories applicable to financial instruments, as follows:

  1. dealing in investments, which includes provisions in relation to:
    • dealing in investments as principal;
    • dealing in investments as agent;
    • arranging deals in investments;
    • advising on investments or credit;
    • providing custody; and
    • operating a multilateral trading facility or organised trading facility; and
  2. managing assets.

The FSRA Virtual Asset Guidance clarifies that software development or dissemination for mining of virtual assets are excluded from the ambit of the ADGM framework.104

The FSMR allow cryptocurrency exchanges to trade in 'accepted virtual assets' only.105 The FSRA decides which tokens or coins are accepted virtual assets. No public register is maintained, because the determination as to what constitutes an accepted virtual asset is specific to the applicant.106 The FSMR envisage a licensed crypto exchange to be regulated like a multilateral trading facility, and is required to have in place the full gamut of oversight processes, such as:

  1. market surveillance, particularly with regard to market abuse, transaction reporting and misleading impressions;
  2. KYC and AML procedures;
  3. settlement processes;
  4. transaction recording;
  5. transparency and public disclosure mechanisms; and
  6. exchange-like operational systems and controls.107

Businesses planning to operate a crypto exchange out of the ADGM as a multilateral trading facility using virtual assets (MFT) must pay an initial application fee of US$125,000108 and an annual supervision fee of US$60,000.109 This compares to an initial application fee for other virtual asset businesses of US$20,000110 and an annual supervisory fee of US$15,000,111 which is to reflect the heightened regulatory burden of the FSRA supervising a MFT. Where the crypto exchange also operates other licensable business, the fee is cumulative. Moreover, a trading levy between 0.0006 per cent and 0.0015 per cent is to be paid to the ADGM calculated on a sliding scale dependent on the average daily trading volume.112 An authorised person operating an MFT is required to maintain minimum regulatory capital in fiat at the standard of a recognised investment exchange, which is equivalent to 12 months' operational expenses.113 It may be higher if the FSRA determines that the virtual asset exchange is high-risk.114

With its clear stand on regulation, the ADGM has, since the introduction of its virtual asset framework in June 2018, become a jurisdiction of interest to global virtual asset businesses, particularly traditional centralised exchanges. At the time of writing, four centralised crypto exchanges have received full regulatory approval to operate a multilateral trading facility or an organised trading facility and to provide custody in and out of the ADGM. Widely reported as planning to host a centralised exchange out of the ADGM,115 Kraken received its financial services permission in December 2019.116 The other three centralised exchanges that have set up shop in the ADGM are Matrix Exchange117 and Glomax,118 both receiving regulatory approval in April 2020, and DEX Limited,119 which received regulatory approval from the FSRA in June 2020. BitOasis was reported in 2019 to be seeking regulatory approval from the FSRA.120 At the time of writing, it appears that BitOasis is still awaiting full regulatory approval121 as it is currently only listed as conducting administrative activities ancillary to office set-up.122 Bithumb, the South Korean centralised cryptocurrency exchange, was also reported to be working towards opening a centralised cryptocurrency exchange in the ADGM through a partnership with Abu Dhabi-based N-VELOP.123 A special purpose vehicle also seems to have been set up for this purpose in the ADGM.124 Abu Dhabi-based MidChains125 is also reported to have applied for a licence but has not yet received full regulatory approval.126

VI REGULATION OF MINERS

The mining of virtual currencies is not a regulated practice in the UAE or in any of the free zones within the UAE. The activity of mining is also not covered in any previous legislation that would be applicable.

The ADGM virtual asset framework does not regulate mining of coins and tokens as a regulated activity. The FSRA Virtual Asset Guidance specifically excludes 'the development, dissemination or use of software for the purpose of creating or mining a virtual asset' from its regulated activities.127

VII REGULATION OF ISSUERS AND SPONSORS

i Onshore UAE

In February 2018, the SCA issued a warning against ICOs stating that it does not regulate, mandate or recognise any ICO.128 At the time, it urged that 'all issuers of digital tokens, intermediaries facilitating or advising on an offer of digital tokens, and platforms facilitating trading in digital tokens should therefore seek independent legal advice to ensure they comply with all applicable laws, and consult SCA where appropriate'.129 In September 2018, the SRA announced that the issuance of a regulation governing ICOs was imminent. It published the SCA Draft Virtual Asset Regulation in October 2019 for public consultation. At the time of writing, the Regulation has not come into force.

The SCA Draft Virtual Asset Regulation regulates issuers of virtual coins and tokens,130 distinguishing between issuers of commodity tokens and security tokens. It includes authorisation requirements for tokens assessed by the SCA with more onerous requirements applicable to security tokens, which match the corresponding requirements for securities issuances.131 It does not separately address Initial Exchange Offerings, Initial Uniswap Listings or Initial Dex Offerings, all of which, however, could be understood to be subsumed in the more generalised offering requirements.

ii DIFC

The DFSA has taken a wait-and-see approach to explicitly regulating the issuance of virtual coins and tokens and their issuers and sponsors. In September 2017, the DFSA issued a warning to investors and clarified that 'it does not currently regulate these types of product offerings or license firms in the Dubai International Financial Centre (DIFC) to undertake such activities'.132 Although no explicit regulation has been issued thus far, virtual assets and blockchain are discussed in the DIFC at an accelerated pace and this subject is a staple in educational seminars offered by the DIFC.133 Moreover, at least one company advising in the field of security token offerings was accepted by the DFSA into its regulatory sandbox in 2019. The company is now licensed to arrange deals in investments and advise on financial products.134

iii ADGM

In October 2017, the FSRA issued guidance applicable to those considering the offering of virtual assets.135 The guidance has been regularly updated (including in June 2018136 and in May 2019137), most recently in February 2020.138 The FSRA considers, on a case-by-case basis, whether a coin or token offering – still termed ICO139 by the FSRA – is to be regulated under the FSMR.140 This would be the case where the FSRA determines that tokens exhibit the characteristics of securities under Section 58(2)(b) of the FSMR. In that case, the FSRA considers virtual asset to be digital securities, and an ICO must comply with the FSMR, if it is issued to the public in or from the ADGM.141 Accordingly, where an ICO is issued abroad but offered to the public in the ADGM, a decision by the FSRA needs to be sought, unless buyers located in the ADGM are excluded from participation.

Further, a FSRA decision to consider a token to be a security triggers the prospectus obligations under Section 61 of the FSMR, other obligations under Chapter 4 of the FSMR Markets Rules, as well as AML and KYC requirements.142 The usual prospectus exemptions may apply where an offer is only made to professional clients (as defined in the FSMR) or fewer than 50 persons in any 12-month period, or where the consideration to be paid by a single person to acquire tokens is at least US$100,000.143 In its newest Digital Securities Guidance, the FSRA suggests that it expects issuers of digital securities to fully consider both the primary and secondary market context. This includes the obligation on the issuer to also seek the digital securities' admission to trading on multilateral trading facilities and recognised investment exchanges operating in the ADGM, owing to the incomplete integration of primary and secondary markets for digital securities.144

Classification as a digital security also triggers requirements for market intermediaries or operators, such as virtual currency exchanges, who trade in those tokens, to be regulated as financial services permission holders, recognised investment exchanges or recognised clearing houses.145 Importantly, the FSRA does not currently envisage allowing a secondary market to list digital securities that were issued outside of the ADGM.146

Additionally, the FSRA may consider tokens used by firms to build an investment fund on the blockchain as units in a collective investment fund (as defined in Section 106 of the FSMR) to which the ADGM's fund rules apply.147 This classification also triggers extensive regulatory requirements.

Where the token to be issued is a stablecoin, it may only be issued in the ADGM, where it is one-to-one backed by fiat currency and would then to be characterised as a fiat token.148 Its issuer is considered a money services business that must hold a financial services permission for the regulated activity of 'providing money services' pursuant to Schedule 1, Section 52 of the FSMR.149

Only where the FSMR does not consider digital tokens to be digital securities, fiat tokens or derivatives is an ICO likely to fall outside the ADGM framework.150 The FSRA ICO Guidance calls on the industry to develop voluntary best-practice standards for such ICOs.151

VIII CRIMINAL AND CIVIL FRAUD AND ENFORCEMENT

Various UAE authorities have raised concerns about fraud related to crypto transactions. The SCA has warned UAE residents about it and advised them to avoid trading in virtual currencies.152 The SCA has previously added certain Twitter accounts or entity names to its list of alerts for falsely claiming to be regulated by the SCA,153 as well as issuing a general warning about promotion of or dealing in financial products associated with digital tokens.

The DFSA has advised potential investors to exercise caution and undertake due diligence to understand the risks involved.154 The DFSA previously sent alerts about fraudulent coins and tokens falsely claiming to being regulated in the DIFC.155 One reason for the FSRA's decision to regulate virtual assets was to prevent significant financial crimes and other risks. The Dubai police has also raised the matter.156

Reports have surfaced about virtual currency-related fraud in the UAE, mainly in relation to over-the-counter transactions to buy and sell virtual currencies,157 investment schemes and scam cryptocurrencies,158 and about the embezzlement of cryptocurrencies by an employee of a cryptocurrency exchange.159 We are also aware of instances where UAE commercial banks have halted cryptocurrency-related transactions pending approval from the Central Bank.

Owing to a lack of legislation at the federal level, there are no specific criminal or civil penalties in place for the misuse of virtual coins or tokens in the onshore UAE or the DIFC, and prima facie outside the scope of standard criminal provisions, such as fraud, embezzlement or theft. However, this no longer appears to be the case for money laundering and terrorist financing offences following the overhaul the UAE's AML/CFT regime. In the ADGM, operators of a virtual asset business may be found guilty of the full gamut of financial crimes and administrative offences and misdemeanours, including market abuse and making misleading statements and impressions.160

One stated aim of the SCA Draft Virtual Asset Regulation is to prevent financial crime and to ensure the proper application of the laws of the state to do so.161 The Regulation explicitly refers to the UAE's amended AML/CTF laws, leaving no doubt that the latter is to apply to virtual coins and tokens too.162

IX TAX

The UAE established the Federal Tax Authority in 2016, introduced an excise tax on certain goods in October 2017 and introduced a value added tax on all good and services in the UAE, with some limited exemptions, from January 2018.163 A sale of virtual currencies could be a taxable transaction under the value added tax laws, but the Federal Tax Authority has not issued any regulations on virtual currencies.

There is no corporate or income tax in the UAE. There are also no withholding tax or foreign exchange controls that impact cross-border payments involving virtual currencies.

X OTHER ISSUES

On 1 July 2020, the DIFC's Data Protection Law (DIFC Law No. 5 of 2020) (DPL) entered into force. The DPL aligns data privacy law in the DIFC with global best practice reflected in the EU General Data Protection Regulation 2016/679 and California's Consumer Privacy Act. The DPL requires companies that perform 'high-risk processing' on a systematic or regular basis to appoint a data protection officer.164 High-risk processing includes processing that uses new or different technologies or methods that create a materially increased risk to the security or rights of data subjects or render it more difficult for data subjects to exercise their rights.165 This includes blockchain-based processing of data, which restricts a data subject's right to erasure and rectification.166 The DPL requires data controllers to inform a data subject about the limitations to request rectification or erasure of their personal data and to ensure the data subject understands and acknowledges the limitation.

XI LOOKING AHEAD

A major topic in the UAE is the different regulatory positions that are being adopted by the UAE federal regulators (the Central Bank and the SCA) and free zone regulators (the DFSA and the FSRA). With the use of virtual coins and tokens becoming more popular in the Middle East, and the aspiration of the UAE to be at the forefront of new business regulations, the UAE will seek to carve a dominant space in the field of blockchain and DLT and for that purpose adopt pro-business regulatory measures. By introducing its virtual asset framework early, the ADGM has garnered wide international attention and attracted several centralised crypto exchanges to operate out of the ADGM. So long as it remains service focused and agile, the pull to set up in the ADGM is likely to continue, at least from 'traditional' centralised entities whose technology fits the current framework. This is also the case for the DMCC, which introduced its licence for proprietary trading in crypto commodities already 2017 and continues to attract talent with its recent partnerships with crypto and blockchain hotspots, such as Switzerland's Crypto Valley. It remains uncertain whether the onshore UAE will be able to catch up with its free zones, although many new initiatives to grow talent and attract foreign entrepreneurs may help in this endeavour.167 The ongoing restructuring of the SCA, which will merge with the UAE Insurance Authority, may also help to speed up this process.168 Moreover, the Dubai government's Dubai Blockchain Strategy, whose aim is to put all transactions with governmental authorities onto a blockchain, is promising.169

As the UAE's main goal is a high level of customer satisfaction across the board and technological edge and innovation, it will prioritise exploring and integrating blockchain technology. Whether the ecosystem will continue to thrive primarily in the free zones alone or both in the free zones and the onshore UAE remains to be seen. We consider the improvement and clarification of the SCA Draft Virtual Currency Regulation a significant factor for the latter.


Footnotes

1 Silke Noa Elrifai is the general counsel and chief legal officer of Gnosis and of counsel at Amereller and Christopher Gunson is a partner at Amereller.

2 In July 2020, it was announced that the SCA would be merged with the Insurance Authority. The name of the new authority is not yet known.

3 SCA, Draft Regulation For Issuing And Offering Cryptoassets, available at https://www.sca.gov.ae/en/regulations/drafts.aspx#page=1 [SCA Draft Virtual Asset Regulation] (last accessed 8 July 2020).

4 See Section VII for further information.

5 FSRA, Guidance – Application Programming Interfaces (APIs) in ADGM, available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/Guidance_on_API_in_ADGM_Note_Final_14_October_2019.pdf (last accessed 8 July 2020).

6 FSRA, Supplementary Guidance – Authorisation of Digital Investment Management (“Robo-advisory”) Activities, available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/Supplementary_Guidance_Authorisation_of_Digital_Investment_Management_Robo-advisory_Activities.pdf (last accessed 8 July 2020).

7 SCA Draft Virtual Asset Regulation.

8 ibid., Section 3.

9 ibid., Section 3(4).

10 ibid., Section 4.

11 SCA, Public Warning Statement on Initial Coin Offerings (ICO) (3 February 2018), available at https://www.sca.gov.ae/en/open-data/warnings/public-warning-statement-on-initial-coin-offerings-ico.aspx (last accessed 5 July 2020).

12 Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and Market (Securities Law), available in Arabic at http://www.dubaided.ae/English/DataCenter/BusinessRegulations/pages/federallaw4of2000.aspx (last accessed 6 July 2020).

13 See, for example, Council of Ministers' Decision No. 12 of 2000 concerning the Regulations as to the Listing of Securities and Commodities; Council of Ministers Decision No. 3/R of 2000 concerning the Regulations as to Disclosure and Transparency; UAE Central Bank Board of Directors' Resolution No. 164/8/94 regarding the Regulation for Investment Companies and Banking, Financial and Investment Consultation Establishment or Companies; Federal Law No. 2 of 2015 concerning Commercial Companies; Administrative Decision No. 3/RT of 2017 regulating venture capital funds; SCA Board of Directors Decision No. 1 of 2014 concerning the Regulation of Investment Management; SCA Board of Directors Decision No. 27 of 2014 on the Regulation of Securities Brokerage; and SCA Board of Directors Decision No. 18 of 2015 Amending Certain Articles of the Regulation as to Disclosure and Transparency, Administrative Decision No. (39/R.T) of 2017 concerning the Investment Policy of Open-ended Public Mutual Funds, Decision No. 18 of 2018 Concerning the Regulations as to Licensing Credit Rating Agencies.

14 Securities Law, Article 2.

15 ibid., Article 20.

16 SCA Board of Directors Decision No. 10 of 2014 Concerning the Regulation of Listing and Trading of Shares of Private Joint Stock.

17 Securities Law, Article 1 (Definitions).

18 See, for example, SCA Board Decision No. (157/R) of 2005 Concerning The Regulations As To Listing And Trading Of Commodities And Commodities Contracts, available at https://www.sca.gov.ae/en/regulations/regulations-listing.aspx#page=1 (last accessed 5 July 2020).

19 SCA Board Decision 46 of 2012 concerning the regulations as to Market Makers.

20 DFSA, DFSA Issues General Investor Statement on Cryptocurrencies (13 September 2017), available at https://www.dfsa.ae/MediaRelease/News/DFSA-Issues-General-Investor-Statement (last accessed 4 July 2020).

21 Alert, Cryptocurrency Platform Melecoin falsely claims to be located in the DIFC (14 October 2019), http://www.dfsa.ae/MediaRelease/Alerts/cryptocurrency-platform-melecoin-falsely-claims-to (last accessed 5 July 2020).

22 ibid.

24 DFSA administrative laws, available at http://dfsa.complinet.com/en/display/display.html?rbid=1547& record_id=7475 (last accessed 5 July 2020).

25 DFSA rules, available at https://dfsaen.thomsonreuters.com/rulebook/rulebook-modules (last accessed 6 July 2020).

26 Article 41, DIFC Law No. 1 of 2004 (Regulatory Law).

27 DFSA General Rules, Rule 2.2.1 available at https://dfsaen.thomsonreuters.com/rulebook/gen-221 (last accessed 6 July 2020).

28 Regulatory Law, Article 41A.

29 Financial Services and Markets Regulations 2015, available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_12483_VER2015.pdf (last accessed 6 July 2020).

30 See also Guidance – Regulation of Cryptoasset Activities in ADGM (25 June 2018), available at https://www.iosco.org/library/ico-statements/Abu%20Dhabi%20-%20FSRA%20-%20Guidance%20-%20Regulation%20of%20Crypto%20Asset%20Activities%20in%20ADGM.pdf; Supplementary Guidance – Regulation of Initial Coin/Token Offerings and Virtual Currencies under the Financial Services and Markets Regulations available at https://www.iosco.org/library/ico-statements/Abu%20Dhabi%20-%20FSRA%20-%20Guidance%20-%20ICOs%20and%20Virtual%20Currencies.pdf (last accessed 8 July 2020).

31 Financial Services and Markets (Amendment No. 2) Regulations 2020, available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/Financial_Services_and_Markets_(Amendment%20No%202)_Regulations_24_February_2020.pdf (last accessed 8 July 2020).

32 FSRA, Guidance – Regulation of Digital Security Offerings and Virtual Assets under the Financial Services and Markets Regulations (24 February 2020), available at https://adgmen.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_19331_VER04240220.pdf [FSRA ICO Guidance]; FSRA, Guidance – Regulation of Digital Securities Activity in ADGM (24 February 2020), available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_19883_VER02240220.pdf [FSRA Digital Securities Guidance]; FSRA Guidance – Regulation of Virtual Asset Activities in ADGM (24 February 2020), available at https://adgmen.thomsonreuters.com/sites/default/files/net_file_store/Guidance-Virtual_Asset_Activities_in_ADGM_VER03.240220.pdf [FSRA Virtual Asset Guidance] (last accessed 5 July 2020).

33 Guidance – Regulation of Digital Security Offerings and Virtual Assets under the Financial Services and Markets Regulations (24 February 2020), available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/Guidance-Virtual_Asset_Activities_in_ADGM_VER03.240220.pdf (last accessed 6 July 2020) [FSRA ICO Guidance], Article 5.2.

34 Section 258(1), Financial Services and Markets (Amendment No. 2) Regulation 2020, available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/Financial_Services_and_Markets_(Amendment%20No%202)_Regulations_24_February_2020.pdf (last accessed 5 July 2020).

35 FSRA ICO Guidance, Para. 4.2.

36 ibid., Para. 4.3 et seq.

37 FSRA, Digital Securities Guidance, Article 16 et seq.

38 FSRA, Digital Securities Guidance.

39 ibid., Para. 15.

40 ibid., Para. 3.

41 ibid., Para. 14.

42 Federal Law No. (14) of 2018 Regarding the Central Bank and Organisation of Financial Institutions and Activities available at https://www.mof.gov.ae/en/lawsAndPolitics/govLaws/Documents/Decretal%20Federal%20Law%20No.%20(14)%20of%202018%20Regarding%20the%20Central%20Bank.pdf (last accessed 8 July 2020).

43 Federal Law No. 10 of 1980 concerning the Central Bank, the Monetary System and Organization of Banking, available at https://www.centralbank.ae/sites/default/files/2018-11/Law-10-English%20%281%29.pdf (last accessed 8 July 2020).

44 UAE Central Bank, Regulatory Framework for Stored Values and Electronic Payment Systems (1 January 2017).

45 ibid., A.1.

46 ibid., D.7.3.

47 Gulf News, 'UAE Central Bank clarifies virtual currency ban', available at https://gulfnews.com/business/sectors/banking/uae-central-bank-clarifies-virtual-currency-ban-1.1971802 (last accessed 9 June 2019).

48 The National, 'UAE Central Bank To Roll Out Fintech Office To Develop Countrywide Ecosystem' (4 November 2019), available at https://www.thenational.ae/business/economy/uae-central-bank-to-roll- out-fintech-office-to-develop-countrywide-ecosystem-1.932591 (last accessed 7 July 2020).

49 ibid., quoting The National.

50 See also KPMG, 'Blockchain coming to the fore' (2020), available at https://home.kpmg/content/dam/kpmg/ae/pdf/uae-banking-perspectives-blockchain-coming-to-the-fore.pdf (last accessed 8 July 2020).

51 ibid.

52 ibid.

53 Federal Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (New AML Law), available at https://www.mof.gov.ae/en/lawsAndPolitics/govLaws/Documents/EN%20Final%20AML%20Law-%20Reviewed%20MS%2021-11-2018.pdf (last accessed 25 June 2019).

54 Cabinet Resolution No. (10) of 2019 Concerning the Executive Regulation of the Federal Law No. 20 of 2018 concerning Anti-Money Laundering and Combating Terrorism Financing, available at https://www.mof.gov.ae/en/lawsAndPolitics/CabinetResolutions/Pages/201910.aspx (last accessed 29 July 2020); see also SCA Board Chairman's Decision No. (21/Chairman) of 2019 procedures of Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations.

55 The SCA Board Chairman's Decision No. (21/Chairman) of 2019 Procedures of Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations, available at https://www.sca.gov.ae/en/regulations/regulations-listing.aspx#page=1 (last accessed 29 July 2020).

56 Federal Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations, available at https://www.mof.gov.ae/en/lawsAndPolitics/govLaws/Documents/EN%20Final%20AML%20Law-%20Reviewed%20MS%2021-11-2018.pdf (last accessed 27 June 2019).

57 Federal Law 9 of 2014, Article 1.

58 New AML Law, Article 23.

59 ibid., Article 26.

60 ibid., Article 30.

61 ibid., Article 25.

62 ibid., Article 24.

63 ibid., Article 14.

64 ibid., Article 30.

65 Article 1, New AML Law read together with Articles 1 and 2, AML Executive Regulation.

66 Article 1, New AML Law together with Articles 1 and 3, AML Executive Regulation.

67 As for example the Gemini Dollar, Tether and True USD.

68 See Cabinet Resolution No. 38 of 2014 concerning the Executive Regulation of Federal Law No. 4 of 2002 Concerning Anti-Money Laundering and Combating Terrorism Financing.

69 See, for example, Section 7(6), Financial Services and Markets Regulations 2015, ADGM FSMR.

70 Khaleej Times, 'UAE financial firms to register on new platform or face penalties', available at https://www.khaleejtimes.com/news/crime-and-courts/uae-first-to-launch-un-developed-anti-money- laundering-platform; see also UAE Central Bank, Services Access Control Manager available at https://eservices.centralbank.ae/sacm/; Central Bank, 'CBUAE Launches goAML Platform in Partnership with United Nations Office on Drugs and Crime (UNODC)', available at https://www.centralbank.ae/sites/default/files/2019-06/GoAML%20Press%20Release-%2023June2019_0.pdf (last accessed 7 July 2020).

71 SCA Draft Virtual Asset Regulation, Section 22.

72 ibid., Section 22(4) and (5).

73 ibid., Section 22(2).

74 See Article 71(1) of the Regulatory Law.

75 DFSA, The DFSA Rulebook Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Module, available at https://dfsaen.thomsonreuters.com/sites/default/files/net_file_store/DFSA1547_20015_VER180.pdf (last accessed 7 July 2020).

76 FSRA, Anti‐Money Laundering and Sanctions Rules and Guidance (AML), available at https://www.adgm.com/documents/financial-crime-prevention-unit/aml-tab/anti-money-laundering-and- sanctions-rules-and-guidance.pdf (last accessed 5 July 2020), see also FSRA Virtual Asset Guidance, Para. 37 et seq.

77 ibid.

78 FSRA Virtual Asset Guidance, Para. 45 et seq., see also Chapter 17.1.2 of the FSRA Conduct of Business Rulebook.

79 FSRA Virtual Asset Guidance, Para. 45.

80 The company operating BitOasis is operated by BO Technologies Ltd, information available at https://bitoasis.net/en/front/privacy-policy (last accessed 7 July 2020).

81 ADGM public register entry for Blex Financial Ltd available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/ (last accessed 7 July 2020).

82 Company Profile for BTSE Commercial Brokers LLC, available via https://eservices.dubaided.gov.ae/ navigating to 'Enquiries' and then 'Search trade names' (last accessed 29 July 2020).

83 Company Profile for BTSE Payment Services Provider, available at https://eservices.dubaided.gov.ae/ navigating to 'Enquiries' and then 'Search trade names' (last accessed 29 July 2020).

84 BTSE, 'Information on BTSE's Licensing' (29 December 2019), available at https://www.blog.btse.com/post/information-on-btses-licensing (last accessed 7 July 2020).

85 Yogita Khatri, 'BTSE details shift to BVI as UAE central bank tells The Block the crypto exchange startup doesn't fall under its 'jurisdiction and regulations', The Block (7 February 2020), available at https://www.theblockcrypto.com/daily/54711/btse-bvi-uae-central-bank-regulations-licensing-crypto-exchange (last accessed 7 July 2020).

86 ibid.

87 BTSE, 'BTSE moves to the British Virgin Islands' (5 February 2020), available at https://www.blog.btse.com/post/btse-moves-to-the-british-virgin-islands (last accessed 7 July 2020).

88 SCA Draft Virtual Asset Regulation, Section 16.3.

89 ibid., Section 16.6(4).

90 ibid., Section 8.

91 ibid., Section 16.5.

92 DMCC Services Updates December 2017, available at https://www.dmcc.ae/blog/dmcc-services- updates-december-2017 (last accessed 7 July 2020).

93 Data available through DMCC Public Directory available at https://landing.dmcc.ae/public-search; see also Arabian Business, Dubai's first licensed Bitcoin trader: 'It's a commodity not a currency' (13 February 2018), available at https://www.arabianbusiness.com/banking-finance/389854-dubais-first-licensed-bitcoin-trader-its-commodity-not-currency, see also https://www.dmcc.ae/application/files/6715/1851/3844/WORLDS_FIRST_DEEP_COLD_STORAGE_FOR_CRYPTO-COMMODITIES_-_EN.pdf (last accessed 7 July 2020).

94 DMCC, 'World's First Deep Cold Storage for Crypto-Commodities launched by Regal Assets in Dubai' 13 February 2018, available at https://www.dmcc.ae/news/worlds-first-deep-cold-storage-crypto-commodities-launched-regal-assets-dubai (last accessed 7 July 2020).

95 License No. DMCC-450051.

96 DMCC, 'DMCC Announces Crypto Valley in Dubai at Davos 2020, Boosting Blockchain Ecosystem' (23 January 2020), available at https://www.dmcc.ae/news/dmcc-announces-crypto-valley-dubai-davos-2020-boost-blockchain-ecosystem; see also https://landing.dmcc.ae/cryptovalley (last accessed 7 July 2020).

98 https://www.dfsa.ae/MediaRelease/News/DFSA-Regulatory-Sandbox-accepts-seven-new-firms-in and https://www.difc.ae/public-register/tokenmarket-capital/ (last accessed 29 July 2020).

99 Public Register, Company Overview Likvidi Securities Ltd, available at https://www.difc.ae/public-register/likvidi-securities-ltd/ (last accessed 5 July 2020).

100 Namely IslamiChain, Okanii, Uqudi, Wethaq Capital Marke'ts, Bodyo, HelloGold, see press release (8 September 2019), '31 innovative global start-ups to participate in the third edition of DIFC FinTech Hive's 2019 accelerator programme', available at https://www.difc.ae/newsroom/news/31-innovative- global-start-ups-participate-third-edition-difc-fintech-hives-2019-accelerator-programme/(last accessed 5 July 2020).

101 73B of Schedule 1, Financial Services and Markets (Amendment No. 2) Regulations 2018.

102 Financial Services and Markets (Amendment No. 2) Regulations 2020, available at https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/Financial_Services_and_Markets_(Amendment%20No%202)_Regulations_24_February_2020.pdf [Financial Services and Markets Regulations 2020].

103 Financial Services and Markets Regulations 2020, Section 5A.

104 FSRA Virtual Asset Guidance, Article 11.

105 Financial Services and Markets Regulations 2020, Section 258(1) .

106 ibid.; see also FSRA Virtual Asset Guidance, Para. 30.

107 FSRA Virtual Asset Guidance.

108 ibid., Para. 176(b).

109 ibid., Para. 178(b).

110 ibid., Para. 176(a).

111 ibid., Para. 178(b).

112 ibid., Para. 182.

113 ibid., Para. 33.

114 ibid., Para. 32.

115 Coindesk, 'Why are Crypto Companies going to Abu Dhabi?' (3 April 2020), available at https://www.coindesk.com/why-are-crypto-companies-going-to-abu-dhabi (last accessed 7 July 2020).

116 ADGM public register entry for Payward Mena Holdings Limited, available at available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/ (last accessed 7 July 2020).

117 ADGM public register entry for Matrix Exchange Ltd, available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/, see also https://www.matrix.co/ (last accessed 7 July 2020).

118 ADGM public register entry for Glomax Exchange Ltd, available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/ (last accessed 7 July 2020).

119 ADGM public register entry for Dex Limited at https://www.adgm.com/public-registers/fsra/fsf/dex-limited, see also https://dex.ae/dex-secures-regulatory-approval-in-the-abu-dhabi-global-market-from-the-fsra/; see also Zawya, 'DEX Secures In Principle Approval For Cryptoasset Exchange From ADGM's Financial Services Regulator' (24 June 2019), available at https://www.zawya.com/mena/en/press-releases/story/DEX_Secures_In_Principle_Approval_For_Crypto_Asset_Exchange_From_ADGMs_Financial_Services_Regulator-ZAWYA20190624093627 (last accessed 7 July 2020).

120 Coindesk, 'BitOasis Clears Hurdle in Bid to Launch Regulated Cryptoasset Exchange' (13 May 2019), available at https://www.coindesk.com/bitoasis-clears-hurdle-in-bid-to-launch-regulated-crypto-asset-exchange (last accessed 29 June 2019).

121 The Block, 'BTSE details shift to BVI as UAE central bank tells The Block the crypto exchange startup doesn't fall under its 'jurisdiction and regulation' (7 February 2020), available at https://www.theblockcrypto.com/daily/54711/btse-bvi-uae-central-bank-regulations-licensing-crypto-exchange (last accessed 7 July 2020).

122 ADGM public register entry for Blex Financial Ltd available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/ (last accessed 7 July 2020).

123 Cointelegraph, 'Bithumb Partners With Blockchain VC Firm Nvelop to Launch Exchange in UAE: Report' (12 February 2019), available at https://cointelegraph.com/news/bithumb-partners-with- blockchain-vc-firm-nvelop-to-launch-exchange-in-uae-report (last accessed 7 July 2020).

124 ADGM public register entry for Nvelop X Holding Limited, available available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/ (last accessed 7 July 2020).

125 https://midchains.com/ (last accessed 7 July 2020).

126 ADGM public register entry for Midchains Limited, available at available via link 'Public Register' on https://www.adgm.com/public-registers or choosing 'company search' on https://www.registration.adgm.com/ (last accessed 7 July 2020).

127 FSRA Virtual Asset Guidance, Para. 11(b)(ii).

128 SCA, Public Warning Statement on Initial Coin Offerings (ICO) (3 February 2018), available at https://www.sca.gov.ae/en/open-data/warnings/public-warning-statement-on-initial-coin-offerings-ico.aspx#:~:text=The%20ICOs%20are%20highly%20speculative,subject%20to%20risk%20of%20fraud (last accessed 7 July 2020).

129 ibid.

130 SCA Draft Virtual Asset Regulation, Section 3(1).

131 ibid., Sections 4, 6 and 7.

132 DFSA Issues General Investor Statement on Cryptocurrencies (13 September 2017), available at https://www.dfsa.ae/MediaRelease/News/DFSA-Issues-General-Investor-Statement (last accessed 8 July 2020).

134 DFSA public register for Likvidi Securities Ltd, available at https://www.difc.ae/public-register/likvidi-securities-ltd/ (last accessed 7 July 2020).

135 FSRA, Supplementary Guidance – Regulation of Initial Coin/Token Offerings and Virtual Currencies under the Financial Services and Markets Regulations (October 2017), available at https://www.iosco.org/library/ico-statements/Abu%20Dhabi%20-%20FSRA%20-%20Guidance%20-%20ICOs%20and%20Virtual%20Currencies.pdf (last accessed 7 July 2020).

136 Guidance – Regulation of Initial Coin/Token Offerings and Cryptoassets under the Financial Services and Markets Regulations (June 2018), available at http://adgm.complinet.com/net_file_store/new_rulebooks/i/c/ICOs_and_Virtual_Currencies_Guidance_VER02.24062018.pdf (last accessed 7 July 2020).

137 FSRA, Regulation of Digital Security Offerings and Cryptoassets under the Financial Services and Markets Regulations (May 2019), available at http://adgm.complinet.com/net_file_store/new_rulebooks/g/u/Guidance_ICOs_and_Crypto_Assets_13052019.pdf (last accessed 10 July 2020).

138 FSRA ICO Guidance (last accessed 7 July 2020).

139 It is noteworthy that, despite the ADGM's speed of adapting its regulations, the February 2020 updates continue to focus on ICOs, although ICOs have lost most of their relevance in the ecosystem, whereas Initial Exchange Offerings, Initial Uniswap Listing and Initial Dex Offering have gained traction, but have thus far found little attention by the regulator.

140 FSRA ICO Guidance, Article 3.3.; see also FSRA Virtual Asset Guidance, Article 28 et seq. (last accessed 5 July 2020).

141 ibid.

142 ibid., FSRA ICO Guidance, Article 3.6; see also FSRA Digital Securities Guidance, Article 28 et seq. (last accessed 5 July 2020).

143 FSRA ICO Guidance, Article 3.6.

144 FSRA Digital Securities Guidance, Article 37.

145 FSRA ICO Guidance, Article 3.7.

146 FSRA Digital Securities Guidance, Article 38.

147 FSRA ICO Guidance, Article 3.9.

148 FSRA Virtual Asset Guidance, Para. 161.

149 ibid.

150 FSRA ICO Guidance, Article 3.10.

151 ibid., Article 3.12.

152 SCA Warnings, available at https://www.sca.gov.ae/en/open-data/warnings.aspx (last accessed 5 July 2020).

153 ibid. (last accessed 10 July 2020).

154 ibid.

155 See Alert, Cryptocurrency Platform MeleCoin falsely claims to be located in the DIFC (14 October 2019) available at http://www.dfsa.ae/MediaRelease/Alerts/cryptocurrency-platform-melecoin-falsely-claims-to (last accessed 5 July 2020).

156 CCN, 'Dubai Police Warns Against Crypto Scams, Predicts Electronic Money Will Replace Cash' (18 September 2018), available at https://www.ccn.com/dubai-police-warns-against-crypto-scams- predicts-replacement-of-cash-with-electronic-money/ (last accessed 10 July 2020).

157 Khaleej Times, 'Man arrested in UAE for Dh2 million Bitcoin fraud' (13 February 2018), available at https://www.khaleejtimes.com/news/crime/man-arrested-in-uae-for-dh2-million-bitcoin-fraud (last accessed 12 July 2020).

158 Gulf News, 'Aziz Com Mirza arrested in Dubai for fraud' (30 October 2019), available at https://gulfnews.com/uae/crime/aziz-com-mirza-arrested-in-dubai-for-fraud-1.67490190; see also 'Canadian in Dubai Arrested for Fraud, Including Crypto Fraud via Habibi Coin, the “Bitcoin of the Middle East''', available at https://www.crowdfundinsider.com/2019/11/153580-canadian-in-dubai-arrested-for-fraud-including- crypto-fraud-via-habibi-coin-the-bitcoin-of-the-middle-east/ (last accessed 10 July 2020).

159 Khaleej Times, 'Dubai employee embezzles Dh800,000 in cryptocurrency fraud' (12 March 2018), available at https://www.khaleejtimes.com/news/crime/dubai-employee-embezzles-dh800000-in-cryptocurrency-fraud (last accessed 10 July 2020).

160 Financial Services and Markets (Amendment No. 2) Regulations 2020, Sections 92, 102 and 103 (as amended).

161 SCA Draft Virtual Asset Regulation, Section 2.

162 ibid., Sections 1, 2, 16 and 22.

163 Federal Decree-Law No. 8 of 2017 on Value Added Tax available at https://www.mof.gov.ae/En/lawsAndPolitics/govLaws/Documents/VAT%20Decree-Law%20No.%20%288%29%20of%202017%20-%20English.pdf (last accessed 10 July 2020).

164 Section 16(2)(b) Data Protection Law DIFC Law No. 5, available at https://www.difc.ae/files/6115/9358/6486/Data_Protection_Law_DIFC_Law_No.5_of_2020.pdf (last accessed 5 July 2020).

165 ibid., Section 3.

166 ibid., Section 33(1)(c) and (2).

167 See, for example, The National, 'UAE Central Bank to roll out FinTech office to develop countrywide ecosystem' (3 November 2020), available at https://www.thenational.ae/business/economy/uae-central- bank-to-roll-out-fintech-office-to-develop-countrywide-ecosystem-1.932591 (last accessed 12 July 2020).

168 Out-Law News, 'UAE merges financial services regulators in government shake-up' (7 July 2020), available at https://www.pinsentmasons.com/out-law/news/uae-merges-financial-services- regulators-government-shake-up; see also International Investment Net, 'UAE to merge financial sector regulators' (3 July 2020), available at https://www.internationalinvestment.net/news/4017416/uae-merge-financial-sector-regulators (last accessed 12 July 2020).