UAE readies national crypto licensing to become a global crypto hub

The United Arab Emirates (UAE) is formulating a licensing regime for virtual asset service providers to formalize the crypto economy and become a global industry hub. Meanwhile, various free zones in the country had introduced crypto regulations as early as 2018.

According to Bloomberg citing government officials, the UAE is readying to issue federal licenses for virtual asset service providers (VASP) looking to attract some of the world’s leading crypto companies.

The country’s federal securities regulator, the Securities and Commodities Authority (SCA), is reportedly in the final stages of developing a licensing framework that would let VASPs like crypto exchanges set up shop in the country, the government official said.

In developing the new rules, Abu Dhabi considered the Financial Action Task Force’s (FATF) latest guidance on regulating cryptocurrencies and the strategies employed by the UK, US, and Singapore. Ultimately, it settled for a hybrid approach whereby the SCA and the central bank would be responsible for regulation, while the regional financial centers would have autonomy concerning day-to-day licensing procedures.

According to an recent Chainalysis report, the UAE is the third-largest crypto market in the Middle East behind Turkey and Lebanon. Based on data from July 2020 to June 2021, the region’s global crypto footprint was relatively modest, marking only 6.6% of the global crypto activity. However, it was also one of the world’s fastest-growing markets, marking a 1500% increase in activity over the period.

The proposed federal licensing regime for crypto firms would help the UAE compete with rival financial centers like Hong Kong and Singapore, which are also gearing up to establish fully regulated crypto-friendly environments. Besides the licensing, the country also wants to promote a business-friendly climate for cryptocurrency miners while considering the industry’s potential impact on the environment.

One of the firms already working to establish a bigger presence in the UAE is Binance, the world’s largest crypto exchange platform by trading volume. Back in December 2021, Binance signed a corporate agreement with the Dubai World Trade Center Authority (DWTCA) after the latter announced plans to establish a favorably-regulated crypto zone.