• ARP Law Group

Setting up: crypto assets business Abu Dhabi and Dubai

Updated: Jun 1



Crypto Assets regulation & recent developments in the UAE

The UAE has taken steps to recognize the use of blockchain technology which is increasingly pervasive in global trade and commerce.

As a market participant and professional services provider, we welcome the development of a functioning framework for regulation and promotion of crypto assets business and related activities as we firmly believe the need to decentralize financial services must be balanced with the imperative need to protect the public’s confidence in Crypto Assets and the underlying technology. Over the past one year, we have successfully assisted several clients so as to facilitate licensing of various activities in the “Virtual Economy” including Distributed Ledger Technology Providers, MetaVerse Service Providers and Crypto Assets Service Providers. We are pleased to see an increasing level of activity in this sector and large-scale recognition of UAE as a global hub for operating a Crypto Assets business.

Given the high level of interest in Crypto Assets, our team has prepared the below comparison between ADGM and DIFC financial free zones as two key jurisdictions for Crypto Assets business set up in the UAE. The DIFC are currently in the latter phase of public consultation of its proposed rules and, at the time of writing, the ADGM is currently the only jurisdiction with a clear set of rules in place and which is accepting applications from all parties for a license to operate a Crypto Assets business.


Virtual Assets Regulatory Authority (VARA)

VARA, based out of the Dubai World Trade Centre (DWTC) Free Zone, has already been established as the competent authority in the emirate of Dubai for all activities related to Crypto Assets for onshore Dubai. We expect executive regulations to be issued in the coming weeks which will further clarify the licensing regime in the DWTCA with VARA as the competent regulator, resulting in further updates from our team.


UAE Central Bank / Securities & Commodities Authority

The VARA shall apply to virtual asset services provided throughout the Emirate of Dubai, including special development zones and free zones, with the exception of the DIFC financial free zone. This means that VARA will supplement and amend existing legislation applicable in Dubai issued by onshore UAE financial regulators, the UAE Central Bank and Securities and Commodities Authority, in relation to crypto assets and stored value facilities. These regulators have issued to date:

  • SCA Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation (CAAR): CAAR regulates the offering, issuing, listing and trading of “Crypto Assets” and related financial activities. CAAR defines a crypto asset as “a record within an electronic network or distribution database functioning as a medium for exchange, storage of value, unit of account, representation of ownership, economic rights, or right of access or utility of any kind, when capable of being transferred electronically from one holder to another through the operation of computer software or an algorithm governing its use”.

  • Central Bank Circular No. 6/2020 - Stored Value Facilities Regulation (SVF Regulation): The SVF Regulation regulates stored value facilities (SVFs) in onshore UAE. SVFs are defined by the Central Bank as non-cash facilities into which users pre-pay money (which includes values, reward points, crypto-assets, or virtual assets) so that users can use that method to pay for goods and services.

ADGM

DIFC

Jurisdiction, Emirate

Abu Dhabi Global Market - Abu Dhabi

Dubai International Financial Centre - Dubai

Regulatory Regime

Regulated by ADGM Financial Services Regulatory Authority (“FSRA”).

Regulated by Dubai Financial Services Authority (“DFSA”).

Regulatory Status

Prudential Category: Virtual Assets regime

Prudential Category: Virtual Assets regime

Structure

  • Private Company Limited by Shares

  • Private Company Limited by Shares.

Permitted/

Authorised Activity

  • Managing Assets

  • Operating an MTF

  • Providing Custody

  • Advising on Investments or Credit

  • Arranging Deals in Investment

  • Dealing in Investments as Agent


  • ​Managing Assets;

  • Dealing in Investments as Principal;

  • Dealing in Investments as Agent;

  • Arranging Deals in Investments;

  • Advising on Financial Products;

  • Operating an Exchange;

  • Providing Custody;

  • Arranging Custody;

  • Operating a Clearing House; and

  • Operating an Alternative Trading System.


Mandatory Appointments & Service Providers*

  • ​Money Laundering and Reporting Officer (must be UAE resident);

  • Compliance Officer (inhouse & external consultant);

  • Senior Executive Officer (must be UAE resident); and

  • Finance Officer (can be outsourced).


Regulated functions can be combined and outsourced subject to FSRA’s absolute discretion, on a case by case basis.


  • ​Money Laundering and Reporting Officer (must be UAE resident);

  • Compliance Officer (inhouse & external consultant);

  • Senior Executive Officer (must be UAE resident); and

  • Finance Officer (can be outsourced).


Regulated functions can be combined and outsourced subject to DFSA’s absolute discretion, on a case by case basis.


Audit Requirement

  • ​External Auditors (must be ADGM approved); and

  • Internal Auditors (can be outsourced).


  • External Auditors (must be DFSA approved); and

  • Internal Auditors (can be outsourced).


P.I Insurance

​Required.

​Required.

​Capital Requirement

  • Multilateral Trading Facility: 12 months operational expenses.

  • All other authorised persons: 6 months operational expenses. (Subject to additional capital buffer as required by FSRA & operating expenses to be determined as per IFRS)

i. USD 1,000,000; and

ii. 18/52 of the expenditure based minimum capital (EBCM).


Marketing outside your free zone

Marketing rules of DIFC, Mainland UAE and any other jurisdiction outside ADGM need to be adhered to if you intend to market the services and products outside ADGM.

Marketing rules of ADGM, Mainland UAE and any other jurisdiction outside DIFC need to be adhered to if you intend to market the services and club deals outside DIFC.

Approval Process:

Steps and Requirements

1. Due Diligence and discussions with FSRA:

Prior to the submission of an Application, all Applicants are expected to provide the FSRA with a clear explanation of their proposed business model and to demonstrate how the Applicant will meet all applicable FSRA Rules and requirements


2. Submission of Formal Application:


Following discussions with the FSRA, and upon the FSRA having reasonable comfort that the Applicant’s proposed business processes, technologies and capabilities are at a sufficiently advanced stage, the Applicant will be required to submit a completed Virtual Asset Application Form, and supporting documents, to the FSRA along with payment of fees applicable to the application.



3. Granting of In Principal Approval

The FSRA will undertake an in depth review of the Application, and supporting documents, submitted by an Applicant. The FSRA will only consider granting an In-Principal Approval for a Financial Services Permission to those Applicants that are considered able to adequately meet all applicable Rules and requirements.



4. Granting of Final Approval An Applicant will be required to meet all conditions applicable to the In Principal Approval prior to being granted with final approval for the relevant Regulated Activity.



5. ‘Operational Launch’ testing

An applicant will only be permitted to progress to operation launch when it has completed its operational launch testing to FSRA’s satisfaction following which it will authorize the company to carry out the Virtual Assets activity in or from the ADGM.



(To be determined as the legislation is still in the consultation process and no applications have been issued as of yet)

Timeline

Total timeline: Subject to FSRA discretion and confirmation from time to time can range between 6 to 12 months depending on the setup requirements.

Total timeline: Subject to DFSA discretion and confirmation and to be determined following issuance of regulations.

​Taxation

N/A

N/A

Regulator’s &

Registry’s Fees

FSRA hold or control Client Assets endorsements: None


FSRA Authorisation Fee:

  1. Non-Custody Intermediary Activities only: Application Fee of USD 20,000

  2. Virtual Asset Custodian & Non-Custody Intermediary Activities: Application fee of USD 40,000

  3. MTF: Application fee of USD 125,000

  4. MTF & Virtual Asset Custodian: Application fee of USD 145,000


FSRA Annual Fee:

  1. Non-Custody Intermediary Activities only: Annual supervision fee of USD 15,000

  2. Virtual Asset Custodian & Non-Custody Intermediary Activities: Annual supervision fee of USD 30,000

  3. MTF: Annual supervision fee of USD 60,000

  4. MTF & Virtual Asset Custodian: Annual supervision fee of USD 75,000

(FSRA Application & Annual fees can be cumulative in case of multiple Regulated Activities.)

Appointment fee of approved persons:

Approximately USD 500 per person


ADGM Registration Fee:

Approximately USD 15,000


ADGM Annual Fee:

Approximately USD 13,100


FSRA Monthly Fee (MTF): An MTF using a virtual asset exchange must pay a monthly levy to FSRA based on Average Daily Values (“ADV”):

  • ADV less than or equal to USD 10mn (0.0015%);

  • ADV between USD 10mn and 50mn (0.0012%);

  • ADV between USD 50mn and 250mn (0.0009%);

  • ADV more than 250mn (0.0006%).


​Approximately USD 150,000


DFSA Annual Fee:

Approximately USD 150,000


Appointment fee of approved persons:

Approximately USD 500 per person


DIFC Registration/Incorporation Fee:

Approximately USD 22,000


DIFC Annual Fee:

Approximately USD 12,000


DFSA Annual Fee (Operator):

A market operator must pay a monthly levy to DFSA based on Average Daily Values (“ADV”):

  • ADV less than or equal to USD 400mn => USD 800k;

  • ADV between USD 200mn and 400mn => USD 500k;

  • ADV between USD 100mn and 200mn => USD 300k;

  • ADV less than 100mn => USD 150k.


Compliance Solution Cost (indicative estimate) *

Compliance Provider Estimates for application and full suite of compliance documents for the initial set up can range between USD 70,000 to USD 120,000 depending on the list of activities.

Compliance Provider Estimates for application and full suite of compliance documents for the initial set up can range between USD 70,000 to USD 120,000 depending on the list of activities.