UAE Encryption Regulation: Similarities and Differences Between Abu Dhabi and Dubai

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its advantageous geographical location, clear support for encryption policies, and favorable tax policies. In the field of virtual asset regulation in the UAE, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) each have their own characteristics and positioning. When analyzing the UAE's virtual asset licensing system, it is necessary to distinguish between the two main jurisdictions of Abu Dhabi and Dubai.

This article will delve into the core aspects and differences of compliance regulations in Abu Dhabi and Dubai. By understanding the regulatory requirements and distinctions in both places, professionals in the encryption industry can better conduct their business, ensure legal compliance, and promote the healthy development of the entire industry.

Regulatory Overview of Abu Dhabi and Dubai

Abu Dhabi

Abu Dhabi Global Market (ADGM), as an international financial center, was established to support the region's economic strategy and to serve as a global financial and business hub. The Financial Services Regulatory Authority (FSRA), as its independent regulatory body, is responsible for overseeing and enforcing the specific encryption asset regulatory provisions of the ADGM.

The FSRA regulates virtual assets as a specific asset class within the financial industry. Therefore, the scope of the encryption asset licenses it issues is relatively limited and does not have the specialized customized regulatory framework like that of Dubai VARA. The application process usually takes six to seven months, and the compliance requirements for the applicants are quite strict, adopting the licensing standards of traditional financial institutions. This creates a high barrier to entry for exchanges with a technical background, while traditional financial institutions transitioning to engage in encryption business are more adaptable.

Dubai

The virtual asset licensing in Dubai is divided into two major systems:

1. Dubai International Financial Centre (DIFC): As a financial free trade zone, its regulatory model is similar to that of ADGM. The Dubai Financial Services Authority (DFSA), as its independent regulatory body, classifies virtual assets as tokenized assets within financial instruments for regulation. The application cycle is approximately seven to eight months, primarily targeting large institutions with financial qualifications. At the same time, DIFC offers a special channel for "innovation licenses," where pure technology development companies (not involving client fund custody or financial transactions) can be approved in about three months.

2. Virtual Assets Regulatory Authority (VARA): A regulatory body specifically established by the Dubai government, which does not directly issue business licenses but overlays virtual asset operating permits on existing company licenses. Its regulatory scope covers mainland companies and free zone companies in Dubai (excluding DIFC), authorizing specific virtual asset businesses through a licensing mechanism.

In addition, the Securities and Commodities Authority (SCA) is responsible for regulating ICOs and token issuance activities. Companies planning to conduct ICOs in the UAE may need to obtain approval from the SCA.

Main Differences Between VARA and ADGM

Nature and Positioning of the Organization

• VARA: The government authority established by the Dubai government to specifically regulate virtual assets, responsible for overseeing the virtual asset industry in Dubai (excluding DIFC), including virtual currency exchanges, virtual asset venture capital funds, NFT platforms, and more.

• ADGM: Abu Dhabi Global Market, a financial free trade zone with an independent regulatory system, where its Financial Services Regulatory Authority (FSRA) is responsible for regulating enterprises providing virtual asset-related services within ADGM.

jurisdiction

• VARA: The jurisdiction is the Emirate of Dubai (excluding DIFC).
• ADGM: The jurisdiction covers the Abu Dhabi Global Market and Al Maryah Island.

Scope of regulation for virtual asset activities

• VARA: The regulatory scope includes brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, investment trading as an agent, and NFT-related activities.

• ADGM: The regulatory scope is similar to VARA but does not include NFT-related activities.

Application Conditions and Requirements

1. Company Registration:

   • VARA requires the applying company to be registered in the mainland of Dubai or any free zone in Dubai (excluding DIFC).
   • ADGM requires the applicant company to be registered in the Abu Dhabi Global Market.

2. Office space: Both require a physical office and do not accept shared desks.

   • VARA generally requires at least one desk for every two visas.
   • ADGM generally requires at least one desk for every three visas.

3. Regulatory Capital:

   • The regulatory capital requirements of VARA range from $11,000 to $27,000, with a maximum of $408,000, or 15%/25% of fixed annual expenses, depending on the type of virtual asset activity.
   • ADGM has an operating expense (OPEX) cycle of 6 to 12 months based on the type of activity.

Application Process and Time

• VARA:

  • The application process includes preparing a compliant business plan, conducting an initial meeting with VARA, submitting materials, reviewing materials, making operational adjustments, re-reviewing, and issuing licenses.
  • The time required to obtain a business license is generally 4-8 months.
  • Required documents include an overview of virtual asset services, KYC documents for company directors and shareholders, financial projections, etc.

• ADGM:

  • The application process includes due diligence and discussions with the FSRA team, submitting a formal application, obtaining in-principle approval, obtaining final approval, and conducting "operational launch" testing, etc.
  • The application period is generally about 6 months.
  • Required documents include a business plan for virtual asset services, KYC documents for company directors, shareholders, and other key personnel, financial forecasts, etc.

required fee

• VARA:

  • The application fee ranges from $11,000 to $27,000.
  • The ongoing supervision fees vary based on the activity, ranging from $22,000 to $55,000.

• ADGM:

  • The application fee ranges from $20,000 to $125,000.
  • Ongoing supervision fees vary by activity, ranging from $15,000 to $60,000.

By understanding the differences in virtual asset regulation between Abu Dhabi and Dubai, practitioners in the encryption industry can choose the most suitable regulatory environment based on their own needs and business characteristics, ensuring compliant operations and promoting healthy industry development.