Dubai's crypto industry has a reason to be excited with the recent unveiling of the jurisdiction's crypto regulatory framework. This framework gives locals a concrete licensing regime for digital asset issuers and service providers, which has been sorely needed after the turmoil that shook crypto markets in 2022. The new rules require all entities offering crypto-related services in Dubai to seek relevant authorization and licenses. This is accompanied by four compulsory rulebooks for service providers and seven activity-based rulebooks that outline requirements by the type of service offered.
Dubai has been courting crypto and blockchain companies to set up in the jurisdiction for some time, with the aim of becoming a global hub for crypto and blockchain activity. With the new regulatory framework in place, institutional crypto custody provider Hex Trust was one of the first to receive an operational go-ahead from the emirate’s watchdog, the Virtual Asset Regulatory Authority (VARA). The comprehensive nature of Dubai's new legal framework leaves room for further development over time.
The new regulatory framework also highlights compliance costs in the region, which may make it harder for smaller companies to set up in the area. While licensing costs are deemed reasonable for larger companies, they may not be sustainable for startups. The application fee for a company offering exchange services is 100,000 UAE dirham (US$27,200) and an annual supervision fee of double that amount. However, as Irina Heaver, a crypto lawyer based in the UAE, points out, Dubai needed to regulate the space due to the number of scammers trying to establish themselves in the area.
Dubai's fees are comparable to other regions, such as Abu Dhabi, which charges a $20,000 application fee and a $15,000 annual supervision fee. Singapore charges a 10,000 Singapore dollar ($7,500) annual fee for a Major Payments Institution license for crypto exchanges that don't engage with fiat currencies, while New York's BitLicense comes with a $5,000 application fee and additional legal and compliance fees.
Overall, Dubai's new regulatory framework is a step towards becoming a global hub for crypto and blockchain activity. The framework provides clarity and a concrete licensing regime for digital asset issuers and service providers. However, compliance costs may be challenging for smaller companies. The regulations will also be used to target bad players in the industry, which is a positive step toward ensuring the safety and security of investors and the wider public.
Nevertheless, Dubai's move is seen as a positive step in regulating the industry, with many in the crypto community welcoming the clarity and structure it brings. The fees and prescriptive regulations may pose some challenges, but they are also expected to filter out "unwanted projects" and scammers in the industry.
Overall, Dubai's new licensing regime is a significant development for the crypto industry, providing much-needed clarity and structure in a time of global regulatory uncertainty. As more countries seek to regulate the industry, Dubai's framework could serve as a model for others to follow in providing clear guidelines for digital asset issuers and service providers.