UAE Virtual Asset Regulation: A Comparison between Abu Dhabi and Dubai

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its advantageous geographical location, clear support for cryptocurrency policies, and favorable tax policies. In the field of virtual asset regulation, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) represent two different regulatory models. Understanding the regulatory differences between these two regions is crucial for crypto practitioners, as it helps them conduct business legally and compliantly, promoting the healthy development of the industry.

Overview of Regulation in Abu Dhabi and Dubai

Abu Dhabi regulation

As an international financial center, the Financial Services Regulatory Authority (FSRA) of ADGM is responsible for overseeing regulations related to crypto assets. The FSRA views virtual assets as a specific category of financial assets, with a relatively limited scope of licensing operations. The application process typically takes six to seven months, and the compliance requirements for applicants are quite stringent, adhering to 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 a greater advantage in transitioning to conduct crypto business.

Dubai regulation

The virtual asset licensing in Dubai is divided into two main systems:

1. Dubai International Financial Centre (DIFC): Its regulatory model is similar to that of ADGM and is overseen by the Dubai Financial Services Authority (DFSA). The DFSA classifies virtual assets as tokenized assets for regulation, with an application period of about seven to eight months, primarily targeting large institutions with financial qualifications. Additionally, the DIFC offers a special "Innovation License" channel, allowing purely technology development companies to obtain approval in approximately three months.

2. Virtual Assets Regulatory Authority (VARA): This is a regulatory body established by the Dubai government, responsible for granting virtual asset operating licenses based on existing company licenses. Its regulatory scope covers mainland companies and free zone companies in Dubai (excluding DIFC).

In addition, the Securities and Commodities Authority (SCA) is responsible for regulating ICOs and token issuance activities, and companies planning to conduct ICOs in the UAE may need to obtain approval from the SCA.

Main Differences Between VARA and ADGM

Institutional Nature and Positioning

• VARA is the regulatory authority established by the Dubai government to oversee the virtual assets sector, responsible for regulating the virtual asset industry in Dubai (excluding DIFC).
• ADGM is a financial free trade zone with an independent regulatory system, and its FSRA is responsible for regulating enterprises that provide virtual asset-related services within ADGM.

jurisdiction

• VARA governs the Emirate of Dubai (excluding DIFC).
• ADGM governs the Abu Dhabi Global Market and Al Maryah Island.

Scope of Regulation on Virtual Asset Activities

VARA and ADGM regulate activities such as brokerage services, virtual asset advisory services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as agents. However, VARA also includes activities related to NFTs, while ADGM does not involve such business.

Application Conditions and Requirements

1. Company Registration:

   • VARA requires the applicant company to be registered in mainland Dubai or any free zone in Dubai (excluding DIFC).
   • ADGM requires the applicant company to be registered in the Abu Dhabi Global Market.

2. Office Space: Both require a physical office and do not accept shared desks. VARA usually requires at least one desk for every two visas, while ADGM requires at least one desk for every three visas.

3. Regulatory Capital:

   • VARA's regulatory capital requirements range from $11,000 to $408,000, or 15%/25% of fixed annual expenses, depending on the type of virtual asset activity.
   • The ADGM requires the operating expense (OPEX) cycle to be between 6 to 12 months, depending on the type of activity.

Application Process and Time

• VARA: The application process includes steps such as preparing a compliant business plan, meeting with VARA, submitting materials, review, operational adjustments, and further review, with obtaining a business license typically taking 4-8 months.
• ADGM: The application process includes conducting due diligence and discussions with the FSRA team, submitting a formal application, obtaining in-principle approval, final approval, and conducting "operational launch" testing, with an application timeline generally around 6 months.

required fee

• VARA: The application fee ranges from $11,000 to $27,000, and the ongoing supervision fee ranges from $22,000 to $55,000.
• ADGM: The application fee ranges from $20,000 to $125,000, and the ongoing supervision fee ranges from $15,000 to $60,000.

Understanding these differences is crucial for crypto businesses to choose the appropriate regulatory environment. Regardless of which regulatory system is chosen, businesses should carefully assess their own needs and resources to ensure compliance with the relevant regulatory requirements, thereby achieving sustainable development in the emerging crypto hub of the UAE.