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The UAE Virtual Assets Market

A report on the regulatory landscape, with special focus on financial crime compliance

In a statement released on 3 May 2022, Dubai’s Virtual Assets Regulatory Authority (VARA) announced its MetavHQ hub in ‘The Sandbox’ (SAND), a diverse metaverse built on the Ethereum blockchain. This makes VARA the world’s first regulator to make its metaverse debut. The Dubai Government media office stated that expanding VARA’s resources to a borderless audience is part of Dubai’s strategy to create a prototype decentralised regulator model. 

Founded less than six months ago, on 28 February 2022, under the aegis of the UAE’s Virtual Asset Law, VARA is an independent regulator, tasked with the regulation, governance, and licensing of cryptocurrencies, Non Fungible Tokens (NFTs) and other virtual assets in Dubai. 

VARA seeks to facilitate collaborative engagement between global Virtual Asset Service Providers (VASPs), industry thought leaders, and international regulatory authorities. 

The excitement on ground is mirrored by international interest in the UAE’s developing crypto market, as evidenced by the entry of global players Binance, Kraken, Bybit, FTX and most recently, Web3 Holdings FZE, Ex-Singapore Parliamentarian, Calvin Cheng’s NFT investment holding company.

Given these interesting developments, several questions arise:

  • What is driving the growth in virtual assets in the UAE?
  • How does the UAE market and regulatory landscape compare with the global market?
  • What are the regulatory implications especially in terms of financial crime risks?
  • What should be the key considerations for the UAE regulators?

This report seeks to answer these questions by setting the backdrop, clear linkages, comparative analysis, and expertise driven regulatory recommendations. The intended audiences are VASPs, banks, and regulators in the UAE.

 

How can PwC help?

Undoubtedly, where the apparent endorsement of digital assets in the UAE comes as welcome news to virtual assets firms, especially given the mixed signals from other jurisdictions, there are several challenges on how to ensure that transparency and trust form the foundation for the long-term growth in this sector.

Added to this is the expectation of greater regulatory oversight within the UAE and internationally, and challenges around compliance, and the risks of unwittingly committing a breach

If you are a regulator
If you are a bank
If you are a VASP

As highlighted in our proposed ‘three-stage facilitative model for UAE regulators’, we believe that regulators can benefit immensely in establishing clear and comprehensive regulations, collaboration with industry experts, and international cooperation.

Given our global standing and expertise in financial crime regulations and our work in virtual assets space, we can assist in collating and analysing industry feedback through consultations; assessment, integration, and enhancement of existing regulations in light of international guidance, and co-creating new regulatory standards, as well as regional/internationally applicable guidance in conjunction with regulators in other jurisdictions in the areas of licensing requirements, KYC, ‘fit and proper’ test, compliance officer requirements, UBO disclosures, KYT, threshold based reporting requirements, Travel Rule, etc. 

On an ongoing basis, we can assist in formulating supervisory procedures, update typologies, and to perform an advisory role as new products/services and technologies come up in this innovative industry.

 

Together with our global network of PwC firms, we strive to deliver solutions that provide trust, transparency, and security. Traditionally banks aren’t equipped to perform due diligence for VASPs. We can offer due diligence of VASPs as a managed service to your bank, thereby allowing you to onboard this upcoming customer segment with the confidence of compliance checks that assess risks considering the cross-border nature of virtual assets and their pseudonymous transactions and validate the VASPs’ own financial crime compliance programmes.

These type of managed services, including custodial services in Wealth Management, will become even more relevant and beneficial to you in future, given the merging of crypto in mainstream finance and given that more and more institutional investors are now investing in virtual assets.

 

We, at PwC can help you smoothly navigate the domain of current and future regulatory requirements applicable to your virtual asset business. We provide a turnkey solution to all your regulatory and financial crime compliance requirements, right from assistance in your licensing application, developing compliant frameworks and to defining your compliance roadmap, catering to existing and expected regulations in the UAE.

While we take care of carrying out your risk assessment, developing control frameworks, creating Compliance Manuals and AML/CFT and Sanctions policies, in line with local and international guidance such as the FATF Standards, we can also assist with your KYC and due diligence processes, compliance monitoring, training and regulatory reporting obligations in the UAE.

With your compliance needs catered for, you can focus on expanding your client base, developing your market, and harnessing new technologies for innovative products and services. Our strategic partnership can propel your business towards secure, compliant, and future proofed growth.

 

Contact us

Mahmoud Al-Salah

Mahmoud Al-Salah

Partner, Financial Services and Deals, Financial Crime Compliance, PwC Middle East

Tel: +971 4 304 3318

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