Crypto Firms Flock to Dubai for Regulatory Clarity as UAE Cleans Its ‘Grey’ Reputation

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  • A recently introduced law is possibly the biggest factor at work in attracting crypto companies to Dubai.
  • Dubai’s open approach towards innovation and development in finance is also encouraging for crypto players.
  • The United Arab Emirates is working to clean up its reputation after being added to the ‘grey’ list by the FATF.

If you are in the crypto industry, it seems that Dubai is the place to be at the moment. Not only is it the most populous city in the United Arab Emirates and one of the largest tourist hotspots in the world, but it has recently seen an influx of crypto companies looking to establish a regional (or global) base, including Binance, FTX, crypto.comY bybit.

Given that Dubai is also among the most important financial centers in the world, it is not surprising that companies related to cryptocurrencies are moving to the city. However, according to industry watchers, it’s not just Dubai’s rising financial status that’s appealing to cryptocurrencies, but also the fact that it passed a law on virtual assets that provides the kind of regulatory clarity that cryptocurrencies need. cryptocurrencies are desperate to obtain elsewhere.

As such, Dubai could increase in importance within the cryptocurrency sector in the coming months and years, even if its inclusion in the Financial Action Task Force The FATF’s ‘grey’ money laundering watch list will see it face increased scrutiny.

What Dubai offers

What is important to note about Dubai’s emerging status within crypto is that most crypto-related companies established a presence after the Virtual Assets Act (VAL) was passed in late February and He brought this law entered into force at the beginning of March. This law also established the rights associated Virtual Assets Regulatory Authority (VARA), which granted Binance one of the first licenses under the new legislation.

“Dubai recently issued a Law on Virtual Assets which is a significant regulatory development both locally and globally: The Virtual Assets Law, issued on February 28, 2022, establishes VARA (the Virtual Assets Regulatory Authority) as a regulatory body that is located within the Dubai World Trade Center (‘DWTC’) in charge of regulating exchanges, wallets, issuers and all activities related to cryptocurrencies”, summarized Serena Sebastiani, Director of Financial Services Advisory of PwC Middle East.

Other commentators agree that the recently introduced law is possibly the most important factor at work in attracting crypto companies. This includes Paritosh Gambhir, a financial services partner at Lower Gulf KPMGwho suggests that such laws and regulations are necessary for cryptocurrency adoption to gain significant traction.

“The Dubai Virtual Assets Regulatory Authority, an independent authority, was also established to oversee the regulation, licensing and governance of virtual assets, non-fungible tokens (NFT), and cryptocurrency. When regulation embraces technology, it facilitates large-scale adoption and it is encouraging to see major exchanges leading the charge,” he said.

But more generally, it is not just the VAL that has resulted in an influx of companies, but also Dubai’s open approach to innovation and development in finance.

“The United Arab Emirates is one of the fastest growing countries when it comes to digitization and new technologies. They have always been several steps ahead of the game, and I think Binance and FTX saw this and capitalized on this opportunity, along with many other attractive features that come along with moving to Dubai, such as lifestyle, stability, and of course, attractive tax rates,” said Dina Mattar, CEO of the Dubai-based cryptocurrency-focused PR/marketing firm. reverse.

Paritosh Gambhir also points out that Dubai “is very focused on innovation”, as evidenced by the many innovation hubs that various banks, financial institutions and government departments have established over the years.

That Dubai and the United Arab Emirates are more open to innovation than other jurisdictions is also evident in the fact that the new VAL also creates a framework for NFTs and other types of cryptocurrencies. Meanwhile, the Dubai police even went as far as releasing 150 free NFTs in early April, highlighting the friendly stance taken by local authorities towards cryptocurrencies.

“What is also considered an exceptional and pioneering move by the establishment of Dubai VARA in the metaverse (Sandbox): The nascent regulator is paving the way for others to experiment in the virtual world and facilitate discussions with players on the field with the ultimate goal of protecting customers,” said Serena Sebastiani.

According to her, such developments indicate Dubai’s commitment to becoming a leading hub for crypto and blockchain technologies. Basically, large companies are assured that new developments in the crypto sector will be greatly welcomed and encouraged, while elsewhere they may not always receive a fair hearing.

Dubai ‘grey’

In early March, the FATF additional the United Arab Emirates to its ‘grey’ list of countries to more closely monitor compliance with anti-money laundering regulations. Reports have also He suggested that the country may have been negligent in the application of its own AML laws.

However, while a critic might argue that cryptocurrencies are attracted to Dubai in large part due to money laundering (i.e., in total, criminals laundered $8.6 billion using cryptocurrencies in 2021, by Chainanalysis), the addition of the UAE to the FATF gray list means that it will be subject to much greater scrutiny. For most industry figures, this increased compliance will only strengthen the industry’s attraction to Dubai.

“In my opinion, I don’t think this will have a strong negative impact on the status of the country. They will be the first to engage with the FATF to ensure they rectify any reputational damage and according to the Paris-based FATF, the UAE has already made significant progress in that regard,” said Dina Mattar.

What the addition to the watch list means is that the UAE will now face rating adjustments, more checks on global financing and higher transaction costs. At the same time, it must demonstrate progress in facilitating international anti-money laundering investigations, managing risks in certain industries, and identifying suspicious transactions in the economy.

It will also need to step up its use of anti-money laundering financial intelligence, while increasing investigations and prosecutions of money laundering cases, and proactively identifying and combating sanctions evasion.

Such measures are interesting, if only for reports that Binance withdrew from Malta because the exchange, the world’s largest by trading volume, was concerned about strict anti-money laundering regulations. That said, the exchange has recently made efforts to obtain a license in Germany and Francenations that most people would imagine are strict with regulations.

While it is curious that Binance and other exchanges have seemingly moved their foundations so much in the past, commentators say this has more to do with seeking clearer regulation than avoiding regulation altogether.

“As the use of cryptocurrencies increases, the cryptocurrency landscape is constantly evolving. Unlike the traditional financial sector, there are no very clear and specific hubs for cryptocurrencies, but rather more jurisdictions that are establishing themselves as pioneers in the virtual assets space, such as Switzerland, Bahamas, Europe, United Kingdom, Singapore, Dubai, for to mention. some,” Serena Sebastiani said.

Dina Mattar points out that if Binance and other exchanges wanted to avoid regulation and supervision, they would not have created a presence in Dubai, which has introduced new frameworks for regulating virtual assets and is increasing its AML compliance.

She said: “I think they are moving out of a jurisdiction for the sake of more regulatory clarity. The UAE has been receiving an influx of companies entering the region as it is one of the fastest growing crypto markets in the world, ranking 3rd in the world with 7% of global trade volumes.”
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