UAE Virtual Asset Regulation: Key Differences Between Abu Dhabi and Dubai

The UAE has become one of the world’s important centers for cryptocurrency and blockchain innovation, thanks to its advantageous geographical location, clear support for cryptocurrency policies, and favorable tax environment. In the field of virtual asset regulation, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) each have their own unique features. This article will delve into the core content and differences in compliance regulation between these two major jurisdictions.

Regulatory Framework of Abu Dhabi and Dubai

Abu Dhabi

ADGM, as an international financial center, has its independent regulatory authority, the Financial Services Regulatory Authority (FSRA), responsible for enforcing specific regulations on crypto assets. The FSRA views virtual assets as a specific asset class within the financial industry, and the scope of the crypto asset licenses it issues is relatively limited. The application process typically takes six to seven months, and the compliance requirements for applicants are quite strict, applying 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 an advantage in transforming to engage in crypto business.

Dubai

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

1. Dubai International Financial Centre (DIFC): Its regulatory model is similar to that of ADGM and is regulated by the Dubai Financial Services Authority (DFSA). The DFSA classifies virtual assets as tokenized assets within financial instruments, with an application cycle of approximately seven to eight months, primarily targeting large institutions with financial qualifications. Additionally, DIFC offers a special channel for pure technology development companies to obtain an “Innovation License,” which can be approved in about three months.

2. Virtual Assets Regulatory Authority (VARA): A specially established regulatory body that does not directly issue business licenses but adds virtual asset operating permits on top of existing company licenses. Its regulatory scope covers mainland Dubai enterprises and free zone companies (excluding DIFC).

In addition, the Securities and Commodities Authority (SCA) is responsible for regulating ICOs and token issuance activities, and 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 the regulatory authority established by the Dubai government to oversee the virtual assets sector, responsible for regulating the virtual asset industry in Dubai (excluding DIFC).
• ADGM is a financial free trade zone, and its Financial Services Regulatory Authority (FSRA) is responsible for regulating businesses providing virtual asset-related services within ADGM.

jurisdiction

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

Scope of Regulation of Virtual Asset Activities

VARA and ADGM both regulate activities such as brokerage services, virtual asset advisory services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as a principal. However, VARA also includes activities related to NFTs, while ADGM does not involve this area.

Application Conditions and Requirements

1. Company Registration:

   • VARA requires the applying company to be registered in mainland 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 usually requires at least one desk for every two visas.
   • ADGM usually requires at least one desk for every three visas.

3. Regulatory Capital:

   • VARA’s regulatory capital requirements range from $11,000 to $408,000, or 15%/25% of fixed annual expenses, depending on the type of virtual asset activity.
   • The ADGM requires the operating expense (OPEX) cycle to be between 6 to 12 months, depending on the type of activity.

Application Process and Time

1. VARA:

   • The application process includes preparing a compliant business plan, initial meetings, submitting materials, review, operational adjustments, and re-review. 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 forecasts, etc.

2. ADGM:

   • The application process includes due diligence and discussions, submitting a formal application, obtaining principle approval, final approval, “operational launch” testing, etc.
   • The application period is generally around 6 months.
   • Required documents include a business plan for virtual asset services, KYC documents for relevant personnel, financial forecasts, etc.

required fee

1. VARA:

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

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