Analysis of the Regulatory Environment for Virtual Assets in the UAE: Differences between Abu Dhabi and Dubai

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its unique geographical location, clear support for crypto policies, and favorable tax system. In the field of virtual asset regulation in the UAE, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) each have their own characteristics and play different roles. To fully understand the virtual asset licensing system in the UAE, it is necessary to examine the two main jurisdictions of Abu Dhabi and Dubai separately.

This article will delve into the key aspects of compliance regulation in Abu Dhabi and Dubai, as well as their differences. By comparing the regulatory requirements of the two locations, practitioners in the cryptocurrency industry can better plan their operations, ensure compliance, and thus promote the healthy development of the entire industry.

Comparison of Regulatory Systems between Abu Dhabi and Dubai

Abu Dhabi regulatory framework

Abu Dhabi Global Market (ADGM), as an international financial center, aims to support the economic strategy of the region and serve as 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 crypto 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 applicants are quite strict, following the licensing standards of traditional financial institutions. This creates a higher barrier to entry for exchanges with a technological background, while traditional financial institutions have more advantages in transforming to engage in crypto business.

Dubai regulatory system

Dubai's virtual asset licensing 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 independent regulatory authority, Dubai Financial Services Authority (DFSA), classifies virtual assets as tokenized assets within financial instruments for regulation. The application cycle takes about seven to eight months, primarily targeting large institutions with financial qualifications. At the same time, the DFSA provides a special channel for "innovation licenses" for purely technology development enterprises (not involving client fund custody or financial transactions), with an application cycle of only about three months.

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

3. Securities and Commodities Authority (SCA): Responsible for regulating ICOs and token issuance activities. Companies planning to conduct ICOs in the UAE may need to obtain approval from the SCA.

Main Differences Between VARA and ADGM

Nature and Positioning of the Organization

VARA is the government authority established by the Dubai government to specifically regulate virtual assets, 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 companies 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 trading as an agent, and also include NFT-related activities.

Virtual asset activities regulated by ADGM include brokerage services, virtual asset consulting 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 the mainland area of Dubai or in any free zone of Dubai (except DIFC).
   • ADGM requires applicants to register companies 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.
   • Generally, ADGM requires at least one desk for every three visas.

3. Regulatory Capital:

   • VARA's regulatory capital requirements 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 activities.
   • ADGM's operating expenses (OPEX) cycle is 6 to 12 months based on the type of activity.

application process and timeline

The VARA application process includes preparing a compliant business plan, having an initial meeting with VARA, submitting materials as required, reviewing materials, making operational adjustments based on conditions, re-reviewing, and issuing the license. 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 of company directors and shareholders, financial forecasts, and other regulatory documents.

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

required fee

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

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