Cryptocurrencies in the UAE
Like in the most parts of the world, the impact and legal apprehension of cryptocurrencies in the UAE is still at the outset. On one hand, the Central Bank of the UAE’s Regulatory Framework for Stored Values and Electronic Payment Systems indicates very clearly that “all virtual currencies [and any transactions thereof] are prohibited”. On the other hand, the UAE and Saudi Arabia have recently made public their plans to implement their own cryptocurrency to be used and regulated in the region.
In September 2017, the Dubai Financial Services Authority has issued in a statement addressed to the Dubai International Financial Centre’s investors that it did not “regulate these types of product offerings [cryptocurrencies]” whilst declaring them to be “high-risk investments”. Today in the UAE, there is no clear vision on this phenomenon. And it is a mere question of definition. UAE central bank governor Mubarak Rashid Khamis Al Mansouri indicated that “these regulations do not cover ‘virtual currency’, which is defined as any type of digital unit used as a medium of exchange, a unit of account, or a form of stored value. In this context, these regulations do not apply to bitcoin or other cryptocurrencies, currency exchanges, or underlying technology such as blockchain”. Some share the views that clarifications do not have legal value, even if the idea of welcoming cryptocurrency business in the UAE must be encouraged if organised.
The main driver to issue cryptocurrencies is the absence of heavy regulations or the clear intent to bypass them. Very recently, for instance, the Venezuelan government, in an admitted intent to escape to US financial embargo, has issued the world’s first state cryptocurrency under the name of ‘petro’. This state of fact creates a desire for states to control transactions in virtual currency, in particular, where money laundering and terrorism financing are major international justified concerns.
Naturally, other legal interesting legal implications remain to be addressed concerning the ownership rights of virtual currencies and blockchain systems, the applicable laws governing smart contracts, liability matters, dispute settlement mechanisms and taxation of generated transactions and profits.
Alike US and EU regulators, the UAE is spending immense energy, talents and resources in order to address the reality of virtual currencies whilst defining a common regulatory framework.
Virtual currency is not likely to replace fiat currency. It is unlikely that it will remain totally unregulated even if, unlike other technologies, their raison d’être is to operate outside the scope of a regulatory framework. The European Securities and Markets Authority’s president, Steven Maijoor, has warned investors in cryptocurrencies indicating that they should be prepared to lose all their investment. The Bundesbank is calling for a worldwide unified regulations and France’s Finance Ministry has called the G20 to address this gap.
Also Read: India turns back on Bitcoin; plans to embrace another one?
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