UAE Virtual Asset Regulation: A Comparison between Abu Dhabi and Dubai

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its superior geographical location, clear support for cryptocurrency policies, and tax incentives. In the regulatory field of virtual assets in the UAE, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) each have their own characteristics and positioning. This article will delve into the key contents and differences in compliance regulation of virtual assets in Abu Dhabi and Dubai.

Regulatory Overview of Abu Dhabi and Dubai

Abu Dhabi

ADGM, as an international financial center, aims to support the economic strategy of the region and play the role of a global financial and business hub. Its independent regulatory authority, the Financial Services Regulatory Authority (FSRA), is responsible for overseeing and enforcing specific regulations regarding crypto assets in ADGM.

The FSRA regulates virtual assets as a specific asset class within the financial industry. Therefore, the scope of the cryptocurrency asset licenses it issues is relatively limited and does not have a specialized customized regulatory framework. The application process typically takes six to seven months, and the compliance requirements for the applicant are quite strict, using the licensing standards of traditional financial institutions. This creates a higher barrier to entry for exchanges with a technical background, while traditional financial institutions are more adaptable to transforming and engaging in cryptocurrency business.

Dubai

The virtual asset licensing in Dubai is divided into two major systems:

1. Dubai International Financial Centre (DIFC): As a financial free trade zone, its regulatory model is similar to that of ADGM. The Dubai Financial Services Authority (DFSA) classifies virtual assets as tokenized assets within financial instruments for regulation, with an application period of approximately seven to eight months, primarily targeting large institutions with financial qualifications. The DFSA also provides a "Innovation License" special channel, allowing purely technical development companies (not involving client fund custody or financial transactions) to be approved in about three months.

2. Virtual Assets Regulatory Authority (VARA): A regulatory body established by the Dubai government that does not directly issue business licenses but overlays virtual asset operating permits on existing company licenses. Its regulatory scope covers mainland companies and free zone companies in Dubai (excluding DIFC), authorizing specific virtual asset businesses through a licensing mechanism.

In addition, the Securities and Commodities Authority (SCA) is responsible for regulating ICOs and token issuance activities, and businesses planning to conduct ICOs in the UAE may need to obtain SCA approval.

Main Differences Between VARA and ADGM

Institutional Nature and Positioning

VARA is a government functional department established by the Dubai government to specifically regulate virtual assets. It is responsible for overseeing the virtual asset industry in Dubai (excluding DIFC), including virtual currency exchanges, virtual asset venture capital funds, NFT platforms, and more.

ADGM is a financial free trade zone with an independent regulatory system, and its Financial Services Regulatory Authority (FSRA) is responsible for regulating businesses providing virtual asset-related services within ADGM.

jurisdiction

The jurisdiction of VARA is the Emirate of Dubai (excluding DIFC).

The jurisdiction of ADGM covers the Abu Dhabi Global Market and Al Maryah Island.

Regulation Scope of Virtual Asset Activities

The virtual asset activities regulated by VARA include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, investment transactions as an agent, and also include NFT-related activities.

The virtual asset activities regulated by ADGM include broker services, virtual asset advisory services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as an agent, but NFT-related activities are not within the regulatory scope.

Application Conditions and Requirements

1. Company Registration:

   • VARA requires the applicant company to be registered in mainland Dubai or any free zone in Dubai (excluding DIFC).
   • ADGM requires the applicant company to register in the Abu Dhabi Global Market.

2. Office Space: Both require a physical office and do not accept shared desks.

   • VARA generally requires at least one desk for every two visas.
   • ADGM generally requires at least one desk for every three visas.

3. Regulatory Capital:

   • The regulatory capital requirements of VARA range from $11,000 to $27,000, with a maximum of $408,000, or 15%/25% of fixed annual expenses, depending on the type of virtual asset activity.
   • ADGM sets the operational expense (OPEX) cycle for 6 to 12 months based on the type of activity.

Application Process and Time

The application process of VARA includes preparing a compliant business plan, having an initial meeting with VARA, submitting materials as required, reviewing the materials, making operational adjustments based on conditions, re-reviewing, and issuing licenses, etc. The time required to obtain a business license generally ranges from 4 to 8 months. The document checklist includes an overview of virtual asset services, KYC documents for company directors and shareholders, financial forecasts, etc.

The application process for ADGM includes conducting due diligence and discussions with the FSRA team, submitting a formal application, obtaining principle approval, receiving final approval, and conducting "operational launch" testing, among others. The application period generally takes about 6 months. The document checklist includes the business plan for virtual asset services, KYC documents for company directors, shareholders, and other key personnel, financial forecasts, etc.

required fee

The application fee for VARA ranges from $11,000 to $27,000, and the ongoing supervision fee varies depending on the activity, ranging from $22,000 to $55,000.

The application fee for ADGM ranges from $20,000 to $125,000, while the ongoing supervision fees vary between $15,000 and $60,000 depending on the activities.

By understanding the differences in virtual asset regulation between Abu Dhabi and Dubai, crypto practitioners can better choose a regulatory environment that suits them, ensuring legal and compliant operations and promoting the healthy development of the entire crypto industry.