Strengthening Guidelines for Virtual Asset Service Providers

The Central Bank of the United Arab Emirates (CBUAE), in conjunction with other regulatory bodies in the nation, has recently released updated joint guidance for virtual asset service providers (VASPs) operating within the country.

The fresh directives include the introduction of penalties for VASPs conducting business without proper licenses in the jurisdiction.

On 6 November, the National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organisations Committee (NAMLCFTC) and the CBUAE unveiled a list termed “Red Flags” for VASPs.

The list comprises various indicators such as the absence of a regulatory license, overambitious commitments, inadequate communication, lack of regulatory disclosures, and other markers that can identify suspicious entities.

According to the newly issued guidelines, the supervisory authorities anticipate all licensed financial institutions (LFIs), designated non-financial businesses and professions (DNFBPs), and licensed VASPs to report transactions involving suspicious parties.

The guidance emphasises the importance of reporting any information regarding unlicensed virtual asset activities through whistleblowing mechanisms, thereby aiding regulatory authorities in their efforts to enforce the law and safeguard the UAE financial system.

Penalties for Unlicensed VASPs

The central bank highlighted that unlicensed VASPs operating in the UAE would be subject to both civil and criminal penalties.

As stated in the report:

“The supervisors remind the sector that VASPs operating in the UAE without a valid license will be subject to civil and criminal penalties including, but not limited to, financial sanctions against the entity, owners, and senior managers.”

Additionally, the document emphasised that LFIs, DNFBPs, and licensed VASPs demonstrating a readiness to engage with unlicensed VASPs will also face legal consequences.

In a press release, His Excellency Khaled Mohamed Balama, governor of the CBUAE and chairman of the NAMLCFTC, said:

“The new guidance on combating the use of unlicensed virtual asset service providers comes at a time when virtual assets become more accessible through digital channels. As our digital economy matures, our work on combating all kind of financial crimes intensifies through raising awareness of their risks and emphasising the importance of compliance with relevant regulations and legislation to ensure the integrity of the UAE’s financial system.”

Crypto Regulation in Middle East

Crypto regulation in the Middle East has been characterised by a diverse range of approaches, reflecting the varying attitudes and priorities of different countries in the region.

While some nations, such as the United Arab Emirates (UAE) and Bahrain, have taken proactive steps to establish comprehensive regulatory frameworks, others like Saudi Arabia and Kuwait have adopted a more cautious stance.

These countries emphasise the need for investor protection and risk mitigation.

Overall, the region has witnessed a growing recognition of the potential of blockchain technology and cryptocurrencies, with several governments expressing a commitment to fostering innovation while ensuring the stability and integrity of their financial systems.

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