The United Arab Emirates (UAE), a country in the Middle East, has announced today that it is making preparations to give federal licenses to virtual assets service providers (VASPs) by the end of this quarter. A government official revealed the matter, as reported by Bloomberg media outlets. The move by the UAE is part of its efforts to attract cryptocurrency firms to the nation.
The government official said that the Securities and Commodities Authority (SCA), UAE’s financial regulator, is in the final phase of creating a framework that would enable VASPs to establish shops in the country.
The UAE considers a nationwide licensing system for virtual-asset companies as vital as this would help the country to better compete with rival financial centers such as Hong Kong and Singapore, which are also in the process of developing fully regulated environments for cryptocurrency trading.
After considering the different approaches of Singapore, the U.S. and the U.K, the UAE will apply a hybrid approach whereby the UAE central bank and the SCA will be responsible for regulation , while regional financial centers will be tasked with determining their day-to-day procedures on licenses.
Moreover, the government official disclosed that the UAE government intends to develop a favourable environment for cryptocurrency mining.
Reports show that some of the financial free zones in the country have already distributed permits to VASPs. Multi Commodities Centre has already issued 22 licenses. Abu Dhabi Global Market has issued 6 licenses while Dubai Silicon Oasis Authority has given at least 1 license.
Promoting Adoption of a Digital Currency Nationwide
In July 2021, the UAE announced plans to develop a central bank digital currency (CBDC) in a bid to join other countries such as the US, China, Japan, and Germany. Alongside the issuance of a CBDC, the UAE Central Bank (CBUAE) disclosed plans to promote digital transformation in the UAE’s financial services sector, strengthen financial inclusion through the use of digital IDs, the use of AI and promote the use of machine learning to improve monitoring.
While unregulated cryptocurrencies are already popular in the country, the UAE stated that a government-issued digital currency could reduce the risks associated with crypto transactions and help the oil-rich nation continue the diversification of its economy.
Crypto coins are popular in the nation and there are a number of trading platforms in place. While the CBUAE does not accept cryptocurrencies as legal tender, it has no plan to completely ban them. Instead, the central bank wants to regulate the coins in order to bring the benefits of crypto while eliminating the high risks associated with them.
In September last year, the Securities and Commodities Authority (SCA) and the Dubai World Trade Centre Authority (DWTCA) agreed to support crypto trading. The two bodies signed an agreement to facilitate the regulation, offering, issuance, listing and trading of cryptocurrencies and related financial activities within DWTCA’s free zone.
