UAE’s New Virtual Asset Law: Protecting Investors and Regulating the Market

Virtual assets are digital representations of real-world assets that are stored on the internet, such as cryptocurrencies and digital tokens. They exist solely in a digital format and are not physical or tangible items. They are secured, tracked, and traded through blockchain technology, which is a distributed ledger system that records, stores, and transfers information in a secure, verifiable manner. Virtual assets can be purchased with real-world currencies or other virtual assets, and they have value because they have the potential to appreciate in value over time.

Digital forms of money exchanged on the internet, have become more popular in recent years. They are known for their low fees, fraud prevention, and ability to provide users with complete control over their currency. Cryptocurrency transactions are facilitated through the use of cryptographic algorithms and blockchain technology, allowing users to remain anonymous, secure and untraceable. Despite the potential benefits that cryptocurrencies provide, there is still a measure of risk and caution consumers should take when investing in them.

The United Arab Emirates recently issued Law No. 4 of 2020 concerning Virtual Assets, which governs the trading, holding, and settlement of different types of virtual assets. This law provides a comprehensive framework and legal basis for the use of virtual assets in the country, with the aim of regulating the market and protecting investors. The law defines virtual assets as intangible assets that are digitally represented, stored, and transferred through distributed ledger networks.

The law specifically regulates trading and holding of cryptocurrencies, which are digital representations of real-world assets that are secured and tracked through blockchain technology. The law seeks to protect investors by providing safeguards and regulations to ensure the fair and transparent use of such assets. In addition, the law provides a framework for the registration, supervision and monitoring of virtual asset exchanges and other related entities.

Under Law No. 4 virtual asset exchanges are required to register with the relevant authorities and must maintain strict safeguards to protect investors. These safeguards include, but are not limited to, ensuring that all customer funds are held in segregated accounts, verifying customers’ identities, and conducting know-your-customer (KYC) procedures. Moreover, exchanges are also required to adhere to anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations.

The legislator has attempted to provides various safeguards and regulations to ensure the fair and transparent use of virtual assets. These include measures related to the registration, supervision, and monitoring of virtual asset exchanges and other related entities, as well as the prevention of money laundering and terrorist financing. The law also establishes rules for the issuance, trading, holding, and settlement of different types of virtual assets, and prescribes penalties for non-compliance with its provisions.