The UAE is preparing to issue federal licenses for virtual asset service providers by the end of the first quarter, in an effort to attract some of the world's largest cryptocurrency companies, according to a government official. Sources told Bloomberg that the Securities and Commodities Authority is in the final stages of amending legislation to allow for the creation of a virtual asset service provider license, known as VASP, as reported by Arab News.
This comes as Binance Holdings, the largest cryptocurrency exchange in the world by trading volume, considers expanding its presence in the UAE. Should the law be passed, it would grant the UAE greater competitive power against Asian financial centers such as Singapore and Hong Kong, which are also in the process of establishing fully regulated environments for cryptocurrency trading.
Some financial free zones in the UAE have already issued permits for VASPs, with the Dubai Multi Commodities Centre having issued 22 licenses, while Abu Dhabi Global Market has 6 licenses, and Dubai Silicon Oasis Authority has at least one, according to a government report obtained by Bloomberg.
In an effort to attract more business, the UAE completed a virtual asset risk assessment late last year, involving 14 public sector agencies and 16 private sector players. While there is a "significant risk" of VASPs being involved in illicit financing schemes, the government concluded that proper regulation, rather than an outright ban, could mitigate these threats, as the report indicates.
A UAE official mentioned that Abu Dhabi has considered the latest guidelines issued by the Paris-based Financial Action Task Force, as well as strategies used in the US, UK, and Singapore. The official stated that opening the sector reflects how the UAE embraces technology.
As the UAE adopts a hybrid approach to regulation, the official stated that the Securities and Commodities Authority will handle regulations with input from the central bank, while local financial centers can set their own licensing procedures.
**Cryptocurrency Mining**
UAE authorities are trying to strike a balance, promoting the adoption of environmentally friendly businesses that have made Dubai an attractive regional hub for many of the world's largest financial and tech companies, while also addressing concerns about volatility and financial crimes associated with the cryptocurrency industry. The UAE government also aims to build an ecosystem for cryptocurrency mining, a sector scrutinized by environmentalists and lawmakers worldwide due to its high electricity consumption and the resulting greenhouse gas emissions.
BitOasis, based in Dubai, is the largest VASP in the UAE, according to a government report. Meanwhile, Binance has formed a local team in the UAE, and Kraken, based in San Francisco, has added a CEO position for the Middle East and North Africa based in Abu Dhabi, according to its LinkedIn page.
The UAE is the third largest cryptocurrency market in the Middle East, following Turkey and Lebanon, with transaction volume reaching approximately $26 billion, according to data collected by Chainalysis from July 2020 to June 2021.
