UAE Virtual Asset 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 cryptocurrency policies, and tax incentives. 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. This article will delve into the key aspects and differences in virtual asset compliance regulation in Abu Dhabi and Dubai.

Regulatory Overview of Abu Dhabi and Dubai

Abu Dhabi

ADGM, as an international financial center, aims to support regional economic strategies and become a global financial and business hub. Its independent regulatory authority, the Financial Services Regulatory Authority (FSRA), is responsible for overseeing and enforcing ADGM’s regulations on cryptocurrency assets.

The FSRA regulates virtual assets as a specific asset class within the financial industry. Therefore, the scope of the cryptocurrency asset licenses it issues is relatively limited and does not possess a specialized customized regulatory framework. The application process typically takes six to seven months, and the compliance requirements for applicants are quite strict, adhering to the licensing standards of traditional financial institutions. This creates a higher barrier to entry for exchanges with a technological background, while traditional financial institutions have a greater advantage when transitioning to engage in cryptocurrency business.

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) classifies virtual assets as tokenized assets within financial instruments for regulation. The application period is approximately seven to eight months, mainly targeting large institutions with financial qualifications. At the same time, DIFC provides a special channel for “innovation licenses,” allowing purely technology development companies (not involving client fund custody or financial transactions) to obtain approval in about three months.

2. Virtual Assets Regulatory Authority (VARA): A regulatory body established by the Dubai government that 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) and authorizes 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 an ICO in the UAE may need to obtain approval from the SCA.

Main Differences Between VARA and ADGM

Nature and Positioning of the Institution

VARA is a government function established by the Dubai government to specifically regulate virtual assets. It is responsible for overseeing the virtual asset industry in Dubai (excluding DIFC), which includes virtual currency exchanges, virtual asset venture capital funds, NFT platforms, and more.

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

jurisdiction

The jurisdiction of VARA is the Emirate of Dubai (excluding DIFC).

The jurisdiction of ADGM covers the Abu Dhabi Global Market and Al Maryah Island.

Scope of Regulation of Virtual Asset Activities

Virtual asset activities regulated by VARA include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, investment trading as an agent, and also include NFT-related activities.

Virtual asset activities regulated by ADGM include brokerage services, virtual asset advisory services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as an agent, but NFT-related activities are not within the scope of regulation.

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 applicants to register companies in the Abu Dhabi Global Market.

2. Office Space:

   • All require a physical office, shared desks are not accepted.
   • 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 defines the operating expense (OPEX) cycle based on the type of activity, ranging from 6 to 12 months.

Application Process and Time

The application process for VARA includes preparing a compliant business plan, having an initial meeting with VARA, submitting materials as required, reviewing materials, making operational adjustments based on conditions, undergoing another review, and issuing the license, among other steps. The time required to obtain a business license generally takes 4-8 months. The list of documents includes an overview of virtual asset services, KYC documents for company directors and shareholders, financial forecasts, and other regulatory documents required by VARA.

The application process for ADGM includes conducting due diligence and discussions with the FSRA team, submitting a formal application, obtaining in-principle approval, receiving final approval, and conducting “operational launch” tests, among other steps. The application time generally takes around 6 months. The document list includes a business plan for virtual asset services, KYC documents for company directors, shareholders, and other key personnel, financial forecasts, and other regulatory documents required by ADGM.

required fee

The application fee for VARA ranges from $11,000 to $27,000, and the ongoing supervision fees vary by activity, ranging from $22,000 to $55,000.

The application fee for ADGM ranges from $20,000 to $125,000, and the ongoing supervision fee varies based on the activities, ranging from $15,000 to $60,000.

By understanding the differences in virtual asset regulation between Abu Dhabi and Dubai, crypto practitioners can better choose a regulatory environment that suits their needs, ensuring legal compliance and promoting the healthy development of the entire crypto industry.