27 Oct 2021

The Future of Crypto Assets Regulation in the UAE

Authored by: Catriona McDevitt

The rapidly evolving crypto-sphere continually gives rise to new terminology which can be confusing- crypto assets, security tokens, non-fungible tokens, crypto currencies…the list is endless.

A continual issue for debate globally is the extent to which crypto assets are, or should be, regulated.

Part of the complexity when looking at regulation is the rapidly evolving terminology. As an example, although many people use the terms “crypto assets” and “crypto currencies” interchangeably, a cryptocurrency is essentially just one type of crypto asset (and probably the most well-known). The most recognized crypto currency is Bitcoin. A crypto asset is a generic term and refers to a digital asset which utilizes cryptography technology to execute transactions.

A key factor in shaping the regulatory landscape around crypto assets will be a developed and mature understanding of the different types of crypto assets.

The extent of regulation of crypto assets varies markedly across different countries. Whilst most countries don’t make the use of crypto assets themselves illegal, the regulatory implications of the various uses thereof differ greatly between countries. Using Bitcoin as an example, some countries have placed limitations on the way Bitcoin can be used, with regulators banning its citizens from making cryptocurrency transactions, while other countries have banned the use of cryptocurrencies completely with substantial penalties in place for anyone making crypto transactions.

Currently, Algeria, Bolivia and Vietnam are a few of the countries that have substantive restrictions in place. As recently as September, China's central bank announced that all transactions of crypto-currencies are illegal, effectively banning digital tokens such as Bitcoin.

Conversely, there is no blanket prohibition or ban on cryptocurrencies in the UK. It also does not have a bespoke financial regulatory regime for crypto assets, although crypto businesses have been subject to anti-money laundering obligations under the Money Laundering Regulations 2017, including a requirement to register with the Financial Conduct Authority (“FCA”). The FCA also maintains a list of non-registered firms so that the public can see that they are not complying with anti-money laundering regulations. There appears to be a belief that there will be more regulation by the FCA in the future over crypto assets.

Despite a number of protests and technical issues, El Salvador became the first country to adopt bitcoin as legal tender this year, so that both the US dollar and bitcoin are now recognized as legal currency. A month on, there still seem to be teething issues - including the downgrading by ratings agency Moody’s of the government of El Salvador's rating due to uncertainty surrounding the possibility of new financing from the International Monetary Fund (“IMF”) after El Salvador adopted bitcoin as legal tender.  It remains to be seen the extent to which it will be successfully tendered in the future and whether any further regulation will be enacted.

The IMF has noted that stricter regulation is needed to prevent the rapid growth in cryptocurrencies leading to financial instability, defrauding of consumers and the funding of terrorism.

The United Arab Emirates (“UAE”) is a sovereign Federal State comprising 7 Emirates. Each Emirate retains jurisdiction over certain matters whilst others are ceded to the Federal State. Those matters which fall within the remit of the Federal State include banking, financial and financial regulatory matters. Individual “free-zone” areas exist within the physical boundaries of the UAE and are divided into financial free-zones and non-financial free-zones. The two financial free-zones which currently exist are (1) the Dubai International Financial Centre (“DIFC”) and (2) Abu Dhabi Global Market (“ADGM”).

The UAE Central Bank (“Central Bank”) and Securities and Commodities Authority (“SCA”) share responsibility for regulation of the UAE’s financial sector, activities and markets in Onshore UAE.

Presently, there is no express prohibition against crypto assets in the UAE, but it is regulated in ‘Onshore’ UAE, the ADGM and very recently this month, the DIFC.


The Dubai Financial Services Authority (“DFSA”) is the regulator of the DIFC. Crypto assets have not historically been regulated in the DIFC and firms were not historically licensed to carry out activities in relation to crypto assets but this is beginning to change. On 25 October 2021, the DFSA unveiled its regulatory framework in relation to investment tokens, which reflects the proposals in its consultation paper in March 2021 and forms the first stage of the DFSA’s digital assets regime.

Any person carrying on certain activities relating to investment tokens, in or from the DIFC, will require DFSA approval or authorization. The activities include, without limitation, carrying on a financial service which relates to an investment token (for example, operating a facility on which Investment Tokens are traded or cleared), making a financial promotion relating to an investment token, making an offer to the public of an investment token, or applying for a security token to be admitted to the official list of securities.

An investment token will therefore, depending on the nature of the rights and obligations it confers, fall into one or more existing categories of a security or derivative. The key difference however, between a conventional security or derivative and an investment token, is that an investment token confers rights on holders that are issued, stored and transferred using cryptography and digital ledger technology.

The DFSA notes that key factors to take into account when determining whether a token is an investment token and, if so, which particular type (or types) of security or derivative it constitutes include what rights and interests are attributable to holders of such a token; who is required to meet the corresponding duties and obligations arising from such rights and interests; how such a token may reasonably be viewed by investors; how the token is described in offer documents or other marketing material and how such tokens are generally defined in other jurisdictions.

The DFSA is also formulating proposals for other tokens not covered by the investment tokens framework, which is expected to include, amongst others, cryptocurrencies and utility tokens.

Onshore UAE

The SCA issued SCA Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation (the “CAAR”). This regulation aims at regulating the offering, issuing, listing and trading of crypto assets in the UAE and related financial activities. The 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”.

The CAAR is designed to regulate and license key aspects of dealing in crypto assets, from issuance and promotion thereof, provision of crypto asset custody services, operating exchanges and fundraising platforms. The CAAR applies to most forms of crypto assets whether securities or otherwise, which are listed and available for trading on a recognised market. The CAAR is not intended to include items regulated by the Central Bank such as currencies, virtual currencies, digital currencies, stored-value units, payment tokens and payment units(s).

The CAAR applies to any person who:

(a) promotes, offers or issues crypto assets in the UAE;

(b) provides crypto asset custody services, operates an exchange for crypto assets or operates a crypto fundraising platform in the UAE; and

(c) carries on any other financial activities in the UAE in relation to crypto assets. Financial activities which are regulated in the UAE include promotion and marketing, issuance and distribution, advice, brokerage, custody and safekeeping, fundraising and operating an exchange.

The CAAR does not apply to:

• Crypto assets issued by the Federal Government, local Governments, Governmental institutions and authorities or any companies that are wholly owned by such entities;

• a currency, virtual currency, digital currency, unit of stored value or any other payment unit issued through a system licensed, approved or required to be approved by the Central Bank pursuant to its regulations that are issued from time to time; and

• securities held in de-materialised form in a clearing or settlement system, by a custodian or depository and Securities not issued as crypto assets but managed using an electronic record keeping method controlled by the offering person or its approved registrar, unless qualifying as crypto assets pursuant to the provisions of the CAAR.

The Central Bank announced the issue of a new Stored Value Facilities Regulation14 (the “SVF Regulation”) on 3 November 2020 which many commentators believed resolved previous uncertainty regarding the permissibility of crypto assets in the UAE. This was due to “crypto-assets” being expressly included in the definition of “Stored Value Facility”.

However, the Central Bank issued a press release on 6 December 2020 in which it highlighted a number of points and clarified the scope of the SVF Regulation. It noted that the Central Bank does not presently accept crypto assets or virtual assets as a legal tender in the UAE and the only legal tender in the UAE is the UAE dirham; that the SVF Regulation aims to license the entities who issue or provide SVFs in the UAE; and it referred to a new Retail Payment Services Regulation that introduces the concept of payment tokens which was to be issued.

The Central Bank stated that by issuing the SVF regulation, it was facilitating Fin-Tech firms and other non-bank payment service providers’ easier access to the UAE market while safeguarding customer’s funds, ensuring proper business conduct and supporting the development of payment products and services.

The Central Bank has subsequently issued the Retail Payment Services and Card Schemes Regulation (referred to above) (the “RPSCSR”). The RPSCSR does not apply to, inter alia, transactions involving commodity or security tokens or transactions involving virtual asset transactions- but does apply to a Payment Token Service.

A Payment Token is defined as a type of crypto asset that is backed by one or more fiat currencies, can be digitally traded and functions as (i) a medium of exchange; and/or (ii) a unit of account; and/or (iii) a store of value, but does not have legal tender status in any jurisdiction. A Payment Token is neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Payment Token. A Payment Token does not represent any equity or debt claim.


Regulation of crypto assets in the ADGM is regulated under the Financial Services and Markets Regulations 2015 (“FSMR”). The regulator in this regard is the Financial Services Regulatory Authority (“FSRA”). Under the FSMR, a “Virtual Asset” “means a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction. A Virtual Asset is (a) neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Virtual Asset; and (b) distinguished from fiat currency and e-money”. The Conduct of Business Rulebook (“COBS”) provides the rules pursuant to which an authorised person (as defined therein) can carry out a regulated activity in relation to Virtual Assets in the ADGM.

Thus it is clear that the crypto sphere presents an ever changing regulatory landscape, both in the UAE and elsewhere. The rapid development of crypto assets and their various forms, together with the investment and AML risks arising therefrom, will necessitate a continual and evolving oversight by various regulators. In the UAE alone, in addition to the DFSA’s new regulatory framework for investment tokens, it was recently announced that the SCA has signed a Memorandum of Understanding with Dubai World Trade Centre Authority wherein the SCA would be responsible for regulatory supervision of offering, issuing, trading and listing crypto assets and the licensing of financial activities related thereto within the limits of the Dubai World Trade Centre Authority freezone.

The content and legal issues arising from the crypto sphere present exciting opportunities for understanding new technologies and definitions and working together with regulators in assessing the way forward for crypto assets.

For enquiries in relation to the regulation of crypto assets in the UAE, please contact the Banking & Finance team.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.