Virtual Assets are booming in leaps and bounds, thanks to their growing acceptance, attractiveness, and the growing prominence of Blockchain technology in various fields. Virtual assets directly impact the financial sector and the economy in general. Intermediaries are becoming increasingly necessary as Virtual Assets move forward, providing support and facilitating transactions; They are also known as Virtual Asset Service Providers (VASPs).
Understanding the differences between “Virtual Assets” and “Virtual Asset Service Providers” is crucial.
What are Virtual Assets?
Understanding Virtual Assets (VA) is essential before understanding Virtual Asset Service Providers. The term ‘Virtual Asset’ refers to cryptocurrency gaming tokens, non-fungible tokens (NFTs), and governance tokens. The VA, however, is a vast concept constantly evolving as we write.
To understand what a virtual asset is, it is necessary to refer to the following definition of the term as defined by the Financial Action Task Force (FATF):
“A digital representation of value that can be digitally traded or transferred and used for payment or investment purposes.”
In terms of its critical elements, a Virtual Asset consists of the following:
- The VA must be digital
- Digitally traded and transferable
- It should be valuable enough to be used as payment or investment.
Virtual currencies such as Bitcoin, Ether, Dogecoin, and Stablecoin are the most common examples of VA.
What is Virtual Assets Service Provider (VASP) in UAE?
Now that we have a basic understanding of virtual assets, it is pertinent to understand what a Virtual Asset Service Provider (VASP) is. The FATF defines VASP as follows:
A business which conducts one or more of the following activities or operations for or on behalf of another natural or legal person:
- An exchange between virtual assets and fiat currencies;
- The exchange between one or more forms of virtual assets;
- Transfer of virtual assets; (to conduct a transaction on behalf of another natural or legal person that moves a virtual asset from one virtual asset address or account to another)
- Safekeeping and administration of virtual assets or instruments enabling control over virtual assets;
- Participating in and provision of financial services related to an issuer’s offer or sale of a virtual asset.
UAE Crypto Regulatory Authorities
Central Bank of the UAE (CBUAE) and the Securities and Commodities Authority (SCA)
Securities and Commodities Authority (SCA) and Central Bank of the UAE (CBUAE) regulate UAE financial and capital markets.
There is a crypto centre at Dubai Multi Commodities Center (DMCC) where VASPs can offer, issue, list, and trade crypto assets. Additionally, it welcomes companies that develop trading platforms based on blockchain technology. By 2026, the CBUAE intends to launch its first digital currency as part of its 2023-2026 strategy. The CBUAE and SCA supervise crypto companies operating from the Dubai Multi Commodities Centre (DMCC).
The Dubai Financial Services Authority (DFSA)
DFSA regulates companies operating out of the Dubai International Financial Centre (DIFC).
The Financial Services Regulatory Authority (FSRA)
FSRA supervises the Abu Dhabi Global Market (ADGM) based companies.
AML/CFT Regulations and Obligations on VASP – AML Crypto Regulations in UAE
The virtual assets are anonymous, and there is no central governing authority; hence the FATF suggests VASPs shall adhere to anti-money laundering and counterterrorism financing regulations.
FATF’s recommendations and growing activities in the UAE related to virtual assets led the government to recognise that the segment needed to be regulated. Crypto companies and virtual asset service providers in UAE must comply with the following regulations, cabinet decisions, and circulars:
- The Federal Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations,
- Federal Decree-Law No. (26) of 2021 amending specific provisions of Law No. 20 for 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations.
- Cabinet Decision No. (10) of 2019 concerning the implementing regulation of Decree-Law No. (20) of 2018.
- Cabinet Decision No. (74) of 2020 Regarding Terrorism Lists Regulation and Implementation of United Nations Security Council (UNSC) Resolutions on the Suppression and Combating of Terrorism, Terrorist Financing, Countering the Proliferation of Weapons of Mass Destruction and its Financing and Relevant Resolution
CZTA at your service
VASPs in the UAE have to adhere to international standards and manage their business against ML/FT risks as per UAE authorities and FATF. Here at Creative Zone Tax & Accounting, we can assist you in understanding whether your business activity fits into the FATF’s VASP activities and your obligations as a VASP. Furthermore, we can help you document your AML/CFT policies, perform training, and ensure your compliance with the law.
Reach out to our experts at [email protected]