Over the recent years, the UAE has fostered a competitive business and financial environment. Today, the country’s share in the global market is around $25 billion transactions, and it has increased 500 percent between July 2020 and June 2021, ranking third regionally following Turkey and Lebanon.
More recently, Dubai has enacted the Virtual Assets Law and establishment of the Dubai Virtual Assets Regulatory Authority (VARA), which is in line with the nation’s vision to cultivate a successful crypto industry. This recent legislative change has shown the government’s commitment to reduce the potential financial crime risk in the nascent sector, according to consulting firm PwC Middle East.
In line with this, PwC has launched ‘The UAE Virtual Assets Market’ report and shared insights into the cryptocurrencies and virtual assets in the UAE. The company also identified a three-stage facilitative model for UAE regulators, to ensure transparency and compliance to promote long-term growth in the sector.
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“The UAE is one of the fastest growing cryptocurrencies markets in the world. Government support and increased consumer demands for virtual assets has led to growth in the industry. However, the crucial policy and strategic question for the UAE is how to maintain the fine balance between inviting innovation, technology and wealth generation and owning the future of crypto and blockchain versus having robust regulations in place to control the potential risks related to financial crime that such new, technology frontiers may unwittingly bring,” said Mahmoud Al Salah, Financial Crime Compliance Partner at PwC Middle East.
The first stage in the proposed framework by PwC is focused on ‘clear regulations.’ The company posited that a “clear and unambiguous legislation, backed by law enforcement” is a “crucial building block” for the success of the crypto market in the UAE.
According to PwC, the UAE requires a comprehensive, all-encompassing framework that covers all Anti-Money Laundering (AML) / Combatting the Financing of Terrorism (CFT) and financial crime aspects. Niche regulation on areas such as Decentralised Finance (DeFi) and Non-Fungible Token’s (NFT) is also essential given the luxury real estate and arts market in the UAE, as this will not only help eliminate ML and TF risks but also help to expand the market.
Furthermore, the report underscored that regulated markets attract institutional investors as they offer clarity and protection through regulations. Additionally, regulatory certainty also inspires confidence among small firms that seek financing and banking relationships.
The second stage that PwC alluded is ‘industry self-regulation.’ The firm highlighted that a collaborative ecosystem of industry players that adopts self-regulating approaches would extremely be beneficial to rapidly advancing industries such as crypto.
Moreover, such approach also helps regulators can reduce their monitoring and enforcement costs and encourage greater cooperation and compliance to mutually agreed standards. Added benefits can include advanced training programmes and sharing of insights and research. Self-regulation is proposed as a counterpart to legislation, and not as a replacement, and requires the involvement and support of legislators for success.
The third and final stage is ‘international coordination and cooperation’. According to the IMF, the Sunrise Issue and borderless nature of crypto can not only cause friction and misalignment but also make compliance difficult for firms, especially where extraterritorial treaties exist.
PwC reiterated the IMF’s call for greater international coordination and underscored the need for harmonisation, communication and cooperation with other jurisdictions for the UAE’s crypto industry to succeed.
“In our proposed ‘three-stage facilitative model for UAE regulators’, we believe that regulators can benefit immensely in establishing clear and comprehensive regulations, collaboration with industry experts, and international cooperation to promote transparency, compliance and innovation within the industry,” said Al Salah.
