Tim Elliott
Welcome to Lawgical, the UAE’s first, and still the only, regular legal podcast. My name’s Tim Elliott. Lawgical comes to you from the Dubai-based legal firm, Yamalova & Plewka. And as always, here is the Managing Partner, Ludmila Yamalova. Nice to see you.
Ludmila Yamalova
Good to be here with you, Tim.
Tim Elliott
This time, it’s a press release, and these are a string of words, but you’ll understand why this is important in a moment. It’s from the National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee, based in Abu Dhabi. It was made available last month.
Now, the title is this: The UAE delivers a progressive and secure regulatory ecosystem for virtual assets with strongly aligned supervisory controls for market growth and investor protection.
That means, Ludmila, I guess, regulation of cryptocurrency transactions that happen in a virtual realm, which of course is good news. But I wanted to just ask you before we get into this in a little bit more detail—traditionally and historically, two or three years ago—
Ludmila Yamalova
A long time ago.
Tim Elliott
Exactly. What has been the UAE’s stance towards cryptocurrency?
Ludmila Yamalova
Well, traditionally, as you said, time is a very fast-moving concept these days, especially when you talk about technology and the UAE.
In the last two or three years, when crypto became more of a routine concept in our discussions, the UAE has been very encouraging and embracing of cryptocurrency, unlike many other jurisdictions. On the one hand, it’s been welcoming and encouraging at a public level of virtual assets, technology, and investment, including cryptocurrencies and professionals in that industry.
However, anything to do with virtual assets and cryptocurrency remains a heated and debatable subject. Its appeal lies in its decentralization, anonymity, and technological innovation. It’s “cool” because it’s decentralized and unregulated, making it desirable for many.
But to become a mainstream commodity or business concept in a developed society, it must be regulated. While the UAE has been enthusiastic and welcoming, the legislative framework was—and still is—under development, given that it’s such a new technology.
Clients often share their excitement about the UAE’s stance on virtual assets, but in practical terms, they question whether they can truly trade and operate with cryptocurrencies as they envision. This is where the regulatory foundation is crucial.
Tim Elliott
Right. But things are changing, aren’t they? We’ve got a Cabinet Resolution that came into force in January 2023, building on similar measures introduced last year. We also have VARA, the Virtual Assets Regulatory Authority, and several free zones starting to emerge where you can see a viable crypto future.
Ludmila Yamalova
Indeed. That’s an interesting angle. A few free zones and types of licenses are becoming available, such as proprietary crypto trading licenses. These options are starting to take shape.
However, all these businesses still rely on the traditional banking system. For instance, if you hold cryptocurrency and want to bring it into the UAE, you can transfer it to your crypto wallet while in the UAE. But what can you do with this money?
You still need the traditional banking system to convert crypto into cash or local currency. To do this, you must open a bank account, and this is where challenges arise. Banks remain highly skeptical and cautious about dealing with anything related to cryptocurrency.
We’ve seen this firsthand with clients in the virtual asset industry. Even if you have a legitimate crypto trading license in one of the free zones, opening a bank account is a challenge. Banks hesitate due to perceived risks, treating virtual assets with suspicion.
Tim Elliott
Why is there such resistance from the traditional banking system toward cryptocurrency businesses?
Ludmila Yamalova
At a high level, cryptocurrency and virtual assets are considered high risk due to their deregulated and decentralized nature. This perception stems from the anonymity and technological complexities associated with the industry.
The UAE’s press release acknowledges this, stating that virtual assets carry inherently higher money laundering and terrorist financing risks. This is due to factors like decentralized operations, anonymity, and real-time cross-border transactions.
On the other hand, the same blockchain technology underlying virtual assets can be used to enhance security, as it is immutable, undeletable, and traceable.
The UAE recognizes these risks but also sees the opportunity to leverage blockchain technology for secure and traceable transactions. As a result, the UAE now deems virtual assets to be fully regulated under its ecosystem.
Tim Elliott
That’s a significant shift. What does this new regulatory ecosystem involve?
Ludmila Yamalova
The UAE has synchronized federal and local regulations while aligning supervisory and enforcement mechanisms. This ensures a cohesive approach to regulating virtual assets.
Previously, different emirates like Dubai and Ras Al Khaimah introduced individual initiatives. For example, Dubai has VARA and proprietary crypto trading licenses, while Ras Al Khaimah recently launched the Digital Assets Oasis, the world’s first free zone exclusively for digital and virtual asset companies.
What the UAE is doing now is centralizing these efforts into a unified framework. This creates a progressive yet secure ecosystem that encourages innovation while mitigating risks.
Tim Elliott
The UAE also introduced Ras Al Khaimah Law 2 of 2023 to establish the Digital Assets Oasis, the first dedicated free zone for digital and virtual asset companies. That’s a game-changer, isn’t it?
Ludmila Yamalova
Absolutely. The Digital Assets Oasis is historic. It offers full financial, administrative, and legislative independence, focusing on industries like the metaverse, blockchain, utility tokens, virtual wallets, NFTs, and more.
By combining these localized initiatives with federal regulations, the UAE is creating a unified legal framework. This supports market growth, investor protection, and the agility required for virtual assets to thrive.
Tim Elliott
That’s one unifying framework, really. So, if you live in the UAE, you can own cryptocurrencies, deposit them, and trade them. If you want to operate a cryptocurrency business, you need the appropriate license. The Central Bank hadn’t previously recognized cryptocurrencies as legal tender. But now, with banks like First Abu Dhabi Bank leading the way, it seems like only a matter of time before others follow.
Ludmila Yamalova
That’s the hope. With this regulatory framework in place, we expect more practical business options for the virtual assets industry, allowing it to grow and thrive.
Tim Elliott
Okay. That’s another edition of Lawgical, discussing virtual assets law in the UAE. As ever, thanks for watching or listening, or both. Thanks to our legal expert, the Managing Partner of Yamalova & Plewka, Ludmila Yamalova. Thank you very much.
Ludmila Yamalova
Thank you, Tim.
Tim Elliott
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