Securing Virtual Asset Services in the UAE: the SCA’s Licensing Requirements

According to reports, the Securities and Commodities Administration (SCA) of the United Arab Emirates has announced that it will begin accepting license applications from companies wishing to provide virtual asset services in the country. All virtual asset service providers (VASPs) operating in the country must submit applications and obtain regulatory approval, except for those licensed in the country’s financial freedom zone. Meanwhile, digital asset companies operating within the Emirate of Dubai must still comply with their own financial regulatory authority, the Virtual Asset Services Authority (VARA). These companies also need to apply for and obtain licenses from VARA.

UAE Federal Financial Supervisory Authority Open VASP License Application

The Securities and Commodities Administration (SCA) of the United Arab Emirates (UAE) recently announced that its doors are now open for companies providing virtual asset services to apply for licenses. This move comes as a response to the booming popularity of virtual assets in the country, as well as the need to regulate the special considerations related to virtual asset transactions. In this article, we will examine the licensing requirements for virtual asset service providers (VASPs) operating in the UAE.

Understanding Virtual Asset Services in the UAE

Virtual assets, also known as cryptocurrencies and digital tokens, have seen a rise in popularity and usage in the UAE. As such, the SCA has recognized the need to regulate these assets under the country’s financial legislation. In order to do so effectively, the SCA has decided to require all VASPs operating in the UAE to apply for licenses and obtain regulatory approval.
It is worth noting that VASPs that are already licensed in the financial freedom zone of the UAE are exempted from this new policy. Meanwhile, digital asset companies operating within the Emirate of Dubai must still comply with their own financial regulatory authority, namely the Virtual Asset Services Authority (VARA), and obtain their own licenses accordingly.

The SCA’s Licensing Requirements

The SCA has laid out a set of comprehensive and stringent requirements for VASPs wishing to obtain a license to offer virtual asset services within the UAE. These requirements include:

1. Approval from SCA’s Board of Directors

The SCA’s Board of Directors must review and approve all license applications submitted by VASPs in order for them to be granted regulatory approval.

2. Compliance with Anti-Money Laundering and Counter-Terrorist Financing Regulations

VASPs must establish and implement effective policies and procedures to prevent money laundering and the financing of terrorist activities. These policies and procedures must comply with the UAE’s Anti-Money Laundering and Counter-Terrorist Financing Regulations and be subject to independent audits on a regular basis.

3. Assurance of Sufficient Financial Resources

VASPs must maintain sufficient financial resources to ensure that their business operations can be sustained and to enable them to meet their obligations to customers.

4. Protection of Customer Assets

VASPs must protect their customers’ assets by keeping them separate from the VASP’s own assets. Additionally, VASPs must provide customers with regular statements of their assets held on the VASP’s platform.

5. Assurance of Proper Risk Management

VASPs must establish and implement an adequate risk management system that identifies, assesses, mitigates, and monitors risks associated with virtual asset services.

6. Compliance with the SCA’s Code of Conduct

VASPs must comply with the SCA’s Code of Conduct for VASPs, which outlines the standards and principles of behavior that they are expected to follow.

Conclusion

The SCA’s announcement of its acceptance of license applications from VASPs is a positive and proactive move towards regulating virtual assets in the UAE. By implementing stringent licensing requirements, the SCA ensures the protection of consumer interests and the integrity of the country’s financial markets. This is in line with the UAE’s reputation as a hub for business activity and progressiveness.

FAQs

Q: What are virtual assets?
A: Virtual assets refer to cryptocurrencies and digital tokens.
Q: What is the financial freedom zone in the UAE?
A: The financial freedom zone in the UAE is an area in the country where businesses enjoy certain tax exemptions and relaxed regulatory requirements.
Q: What is the Virtual Asset Services Authority?
A: The Virtual Asset Services Authority (VARA) is the financial regulatory authority in the Emirate of Dubai that oversees the licensing and regulation of digital asset companies.