In the race to become the blockchain hub in the Middle East, the United Arab Emirates (UAE) is preparing regulations for Virtual Asset Service Providers (VASPs). According to sources in government, a licensing regime for VASPs will be ready by the end of Q1, with block reward miners also expected to receive their own set of rules.
The UAE is one of the largest markets in the Middle East for digital currencies, with Dubai and Abu Dhabi being among the most attractive cities for VASPs looking to target the region. According to Chainalysis, it is the third largest digital currency market in the region after Turkey and Lebanon. Over the past year, this market has jumped over 1,500%, the blockchain analytics firm noted.
The UAE government is seeking to keep the market growing by introducing favorable regulations, a source told Bloomberg. The Securities and Commodities Authority (SCA) is in the final stages of a bill that will amend existing legislation and allow VASPs to be licensed in the UAE. This bill will be ready by the end of the first quarter, revealed the official, who requested anonymity due to government policy.
In late 2021, the UAE government conducted a risk assessment on virtual assets in an exercise involving 16 private sector players and 14 public agencies. He found that the industry has many advantages, but also has disadvantages such as increased risks of money laundering. He then concluded that the best approach was appropriate regulation rather than an outright ban, the official revealed.
In its latest push to regulate the industry, the UAE government has taken full account of the latest Financial Action Task Force (FATF) guidelines on digital assets. This will be critical for the Middle Eastern country which recently found itself in trouble with the FATF.
In January, the FATF revealed that it was leaning towards adding the United Arab Emirates to its gray list of countries. This is a classification that implies that a country has strategic deficiencies in the fight against money laundering and the financing of terrorism. This list includes other countries like Syria and South Sudan. The FATF is expected to make its decision whether or not to add the UAE to this list in the coming weeks.
With this in mind, the UAE government is keen to properly regulate digital currencies to ensure that they do not place them on the gray list.
As the source further revealed, the government will take a hybrid approach to regulating VASPs. The SCA will manage the regulations in partnership with the central bank, with local financial centers being allowed to carry out their own licensing procedures.
Along with VASPs, the UAE also wants to regulate block reward miners, a sector the US now dominates. Currently, the Middle Eastern country is a small player in the mining world, but with regulatory uncertainty in Russia and energy disruptions and tax hikes in Kazakhstan – which are two other big players – attracting these miners could s prove to be quite easy in the near future. .
Watch: BSV Stories – Episode 4: The Blockchain Race in the Middle East
New to Bitcoin? Discover CoinGeek bitcoin for beginners section, the ultimate resource guide to learn about bitcoin – as originally envisioned by Satoshi Nakamoto – and blockchain.