UAE to license digital currency firms as local market skyrockets by 1,500%

In the race to become the Middle East’s blockchain hub, the United Arab Emirates (UAE) is readying regulations for virtual asset service providers (VASPs). According to sources from within the government, a licensing regime for VASPs will be ready by the end of the first quarter, with block reward miners also set to be issued with their own set of rules.

The UAE is one of the Middle East’s biggest markets for digital currencies, with Dubai and Abu Dhabi being among the most attractive cities for VASPs seeking to target the region. According to Chainalysis, it’s the region’s third-largest digital currency market after Turkey and Lebanon. In the past year, this market has surged by over 1,500%, the blockchain analytics firm noted.

The UAE government is seeking to keep the market growing by introducing friendly regulation, a source told Bloomberg. The Securities and Commodities Authority (SCA) is in the final stages of a draft bill that will amend existing legislation and allow VASPs to be licensed in the UAE. This bill will be ready by the end of the first quarter, revealed the official, who requested anonymity due to government policy.

In late 2021, the UAE government conducted a risk assessment on virtual assets in an exercise that involved 16 players from the private sector and 14 public agencies. It found that the industry has many benefits but also comes with drawbacks such as heightened money laundering risks. It then concluded that the best approach is proper regulation rather than an outright ban, the official revealed.

In its latest push to regulate the industry, the UAE government fully considered the latest guidance from the Financial Action Task Force (FATF) on digital assets. This will be critical for the Middle Eastern country which has, in recent times, found itself in trouble with the FATF.

In January, the FATF revealed that it was leaning toward adding the UAE to its gray list of countries. This is a classification that implies a country has strategic deficiencies in combating money laundering and terrorist financing. This list has other countries such as Syria and South Sudan. FATF is expected to make its decision on whether to add the UAE to this list in coming weeks.

With this in mind, the UAE government is keen to properly regulate digital currencies to ensure that they don’t land it on the gray list.

As the source further revealed, the government will take a hybrid approach to regulating VASPs. The SCA will handle the regulation in partnership with the central bank, with local financial centers being allowed to do their own licensing procedures.

Aside from the VASPs, UAE also wants to regulate block reward miners, a sector that the U.S now dominates. Currently, the Middle Eastern country is a small player in the mining world, but with regulatory uncertainty in Russia and energy disruptions and tax hikes in Kazakhstan-which are other two big players-attracting these miners could prove to be quite easy in the near future.

Watch: BSV Stories – Episode 4: The Middle East’s Blockchain Race