In the last week of September, two huge regulatory entities, the Dubai virtual assets regulatory authority and DIFC (Dubai International Financial Center) in the UAE announced updates in their crypto regulations, targeting digital assets, security tokens and stablecoins.
Dubai’s Virtual asset regulatory authority (VARA) updated its virtual asset rulebook and added new regulations with regards to what it calls Fiat referenced virtual asset (FRVA) better known as virtual assets pegged to a stable value, or stablecoins.
As per VARA definition, Fiat-Referenced Virtual Asset (FRVA) is a type of virtual asset that purports to maintain a stable value in relation to the value of one or more fiat currencies but does not have legal tender status in any jurisdiction. An FRVA is neither issued nor guaranteed by any jurisdiction and fulfills its functions only by use and acceptance within the community of users of the FRVA.”
VARA included an exception which entailed stablecoins pegged to the UAE currency the AED as it will remain under the sole and exclusive regulatory purview of the Central bank of the UAE. FRVAs, or stablecoins also exclude assets that are representations of equity claims issued by central banks, CBDCs, or tokenized bank deposits for interbank settlement purposes.
In addition, issuers of FRVAs will have to ensure reserve assets, a pool of assets maintained in accordance Rule III.B of these FRVA Rules and as approved by VARA. Reserve Assets are not Client Money or Client VAs, as defined in the Compliance and Risk Management Rulebook.
In addition VARA states that currencies of sanctioned countries or territories. VASPs may not have as a Reference Currency any currency issued by any country] or territory which are subject to sanctions under Federal AML-CFT Laws.
In parallel, Dubai International Financial Centre (DIFC), which is an autonomously regulated, has also proposed a new securities digital asset law in a new consultation paper.
According to the news piece the proposed legislative enactments, and amendments to existing legislation, aim to ensure DIFC Laws keep pace with the rapid developments in international trade and financial markets arising from technological developments, and to provide legal certainty for investors in, and users of, digital Assets.
Jacques Visser, Chief Legal Officer at DIFC, commented: “DIFC is excited to announce a proposed new Digital Assets Law and new Law of Security regime. DIFC has been working closely with experts in the field of digital assets and banking and finance to create a groundbreaking Digital Assets Law, and in doing so proposes a significantly enhanced and updated Law of Security regime. The proposed Digital Assets Law sets out the legal characteristics of a digital asset, its proprietary nature, how it may be controlled, transferred, and dealt with by interested parties. The proposed new Law of Security is modeled on the UNCITRAL Model on Secured Transactions and has been adapted to take account of specific factors relating to DIFC. We believe these proposals will put DIFC’s legal and regulatory framework at the forefront of international best practice.”
The UNCITRAL Model Law on Secured Transactions (the “Model Law”) deals with security interests in all types of tangible and intangible movable property, such as goods, receivables, bank accounts, negotiable instruments, negotiable documents, non-intermediated securities and intellectual property with few exceptions, such as intermediated securities.
According to DIFC news, to date, globally there has yet a comprehensive legal framework mapping out the full extent of the legal characteristics of a digital asset and how users and investors within this asset class may interact with digital assets and each other.
As such DIFC has published its public consultation on Digital Assets Law proposal to provide such a comprehensive framework in DIFC. In addition, the legislative proposal also proposes changes to other cornerstone DIFC laws, including the Contract Law, the Insolvency Law, the Law of Obligations, the Trust Law, and the Foundations Law to cater to the requirements of digital assets in the larger legal framework of the DIFC.
With the new law and consultation paper DIFC proposes to repeal the current Law of Security, and to significantly amend and enhance DIFC’s securities regime providing clarity in relation to taking security over digital assets. In doing so, the DIFC also proposes to repeal the current Financial Collateral Regulations and amalgamate the financial collateral provisions into a new chapter of the proposed new Law of Security.
The proposed legislative changes contained in Consultation Papers No. 4 and No. 5 of 2023 have been posted for an extended 40-day public consultation period with the deadline for providing comments ending on 5 November 2023.
These two regulations and legislative amendments are bound to attract a higher number of diverse Web3 entities to Dubai and the UAE.
