Policy Makers Tightens Digital Assets Regulation to Restore Integrity of UAE’s Financial System

In a recent report, the Central Bank of the United Arab Emirates (CBUAE) teamed up with other multidisciplinary units to offer comprehensive policies for crypto assets. The primary focus of the collaboration aimed at safeguarding the investors from suspicious business activities.

The rise of unlawful crypto activities forced the CBUAE to co-author a joint report with other government agencies that outlined the compliance procedures for virtual asset service providers (VASPs) in the Arab country.

UAE Formulates New Crypto Rules

A review of the newly published guidance for VASP demonstrated that the regulator will enforce strict rules on crypto activities. This implies that to operate as a regulated VASP in the UAE, the individual or entity must secure a license from the market regulators.

However, failure to meet the new licensing requirement will subject the non-compliant VASP to penalties and legal charges.

Besides the VASP requirements, the CBUAE joined forces with the National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organisations Committee (NAMLCFTC) to create awareness to the public on ways to identify susceptible crypto activities.

The CBUAE and NAMLCFTC released a list titled “ Red Flags for VASPs.” This list was subdivided into six main categories outlining the legal peril a VASP will face for non-conformity with the new law.

The list illustrates the legal implications of a lack of regulatory license and inadequate regulatory disclosure to the relevant authority. Also, the list points out the damages caused by VASPs while setting unrealistic targets and poor communication with the customers.

Regulators in UAE Set to Clamp Down Non-Compliant VASPs

In the latter, the CBUAE and NAMLCFTC underlined the “key indicators” the customers should use to identify suspicious VASPs, exchanges, and token issuers. According to the publication, all regulated entities, including licensed financial institutions (LFIs), VASPs, and designated non-financial businesses and professions (DNFBPs), will be required to alert the relevant authorities about a suspicious transaction.

The regulators have urged to adopt the whistleblower mechanism to inform the authorities of illegal business activity. This development aims to assist the regulators in shielding the UAE financial systems from exploitative activities.

The report demonstrated that the UAE supervisory agencies will clamp down  unlicensed VASPs in the Arab country. The regulators underlined the need for a valid license to avoid civil and criminal charges.

Additionally, the regulator has advised the regulated financial institutions to cut ties with the unlicensed VASPs to uphold compliance. The report indicated that individuals or entities involved in unlawful business will face legal action.

An announcement conveyed by the governor of CBUAE, His Excellency Khaled Mohamed Balama, demonstrated that with increased accessibility to digital assets, it was important for the regulators to develop comprehensive policies on crypto.

Reflecting on the exciting growth of digital economies, the CBUAE official confessed that efforts to regulate the financial sector has lately intensified due to heightened financial crime.

Mr. Balama admitted with the dynamism in the financial sector  has forced the regulators  to adopt a practical regulatory critique to support the integrity of the UAE financial system.

However, with the steady growth of the oil and gas sector in UAE, the Arab country has broadened its revenue streams, attracting the attention of international regulators.

UAE Seeks to Meet AML Global Standards

In March, the Financial Action Task Force (FATF) listed the UAE in the grey list, citing the inadequacy of AML and CTF policies. The listing of UAE as a country with potential incapabilities of meeting the international AML and CTF standards obliged the regulators to strengthen the existing laws.

Commenting on the collaborative approach between the UAE and the international regulatory agencies, a prominent lawyer, Irina Heaver, confessed that the UAE has strived to meet the global standards to be delisted from the FATF’s “grey list.”

The lawyer anticipates that with the current reforms, the UAE might be removed from the global watchdog grey list. Heaver believes that in the upcoming FATF review schedule in Q2 of 2024, the UAE might be eliminated  from the grey list.

She urged the policymakers to continue with exemplary work to ensure the UAE’s law meets the global compliance standards.

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