UAE Virtual Asset Regulation: A Comparison Between Abu Dhabi and Dubai

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its unique geographical location, clear support for cryptocurrency policies, and favorable tax policies. It is worth noting that there are two main regulatory bodies in the field of virtual asset regulation in the UAE: the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA). These two bodies have significant differences in their regulatory approaches and positioning, so when analyzing the virtual asset licensing system in the UAE, it is necessary to consider the two jurisdictions of Abu Dhabi and Dubai separately.

Regulatory Framework of Abu Dhabi and Dubai

Abu Dhabi

Abu Dhabi Global Market (ADGM), as an international financial center, was established to support the economic strategy of the region and to play the role of a global financial and business hub. The independent regulatory authority of ADGM is the Financial Services Regulatory Authority (FSRA), which is responsible for supervising and enforcing the specific regulatory provisions for crypto assets in ADGM.

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 have a specialized customized regulatory framework like Dubai's VARA. The application process typically takes six to seven months and has strict compliance requirements for applicants, adopting the licensing standards of traditional financial institutions. This creates a higher barrier to entry for exchanges with a technical background, while traditional financial institutions are more adaptable to transitioning into 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 independent regulatory authority of DIFC is the Dubai Financial Services Authority (DFSA). The DFSA classifies virtual assets as tokenized assets within financial instruments for regulation, with an application period of about seven to eight months, primarily aimed at large institutions with financial qualifications. However, DIFC also offers a special channel for an "innovation license" where purely technology development companies (not involving client fund custody or financial transactions) can be approved in about three months.

2. Virtual Assets Regulatory Authority (VARA): This is a regulatory body established specifically by the Dubai government, which does not directly issue business licenses but overlays virtual asset operating licenses on existing company licenses. VARA's 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 Institution

• VARA is a government authority established by the Dubai government to specifically regulate virtual assets. It is responsible for overseeing the virtual asset industry in Dubai (excluding DIFC), including cryptocurrency 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 businesses that provide 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 for Virtual Asset Activities

• Activities related to virtual assets 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.

• The virtual asset activities regulated by ADGM include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as an agent, but NFT-related activities are not within the regulatory scope.

Application Conditions and Requirements

1. Company Registration:

   • VARA requires the applicant company to be registered in the mainland of Dubai or any free zone in Dubai (excluding DIFC).
   • ADGM requires the applicant company to register 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:

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

Application Process and Time

1. VARA:

   • The application process 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 a license, etc.
   • The time required to obtain a business license is generally 4-8 months.
   • The document list includes an overview of virtual asset services, KYC documents for company directors and shareholders, financial forecasts, and other regulatory documents required by VARA.

2. ADGM:

   • The application process 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" testing, etc.
   • The application period is generally around 6 months.
   • The document list includes the 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

1. VARA:

   • The application fee ranges from $11,000 to $27,000.
   • Ongoing monitoring fees vary by activity, ranging from $22,000 to $55,000.

2. ADGM:

   • The application fee ranges from $20,000 to $125,000.
   • The ongoing supervision fee varies depending on the activity, 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 business, ensuring legal and compliant operations, thereby promoting the healthy development of the entire crypto industry.