The Regulatory Landscape of Virtual Assets in the UAE: The Differentiated Development of Abu Dhabi and Dubai

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its superior geographical location, clear support for cryptocurrency policies, and tax incentives. In the field of virtual asset regulation, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) each have their own characteristics. This article will delve into the key content and differences in compliance regulation in Abu Dhabi and Dubai, providing better business development and compliance operation guidance for crypto practitioners.

Comparison of Regulatory Systems between Abu Dhabi and Dubai

Abu Dhabi

ADGM, as an international financial center, aims to support regional economic strategies and play a role as a global financial and business hub. Its independent regulatory authority, the Financial Services Regulatory Authority (FSRA), is responsible for overseeing and enforcing ADGM's regulations on crypto assets.

The FSRA regulates virtual assets as a specific asset class within the financial industry. Therefore, the scope of the cryptocurrency asset licenses it issues is relatively limited, lacking a specialized customized regulatory framework. The application process typically takes six to seven months, with strict compliance requirements for applicants, following the licensing standards of traditional financial institutions. This creates a high barrier to entry for exchanges with a technological background, while traditional financial institutions have a greater advantage in transitioning to conduct cryptocurrency business.

Dubai

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

1. Dubai International Financial Centre (DIFC): As a financial free trade zone, its regulatory model is similar to that of ADGM. The Dubai Financial Services Authority (DFSA) classifies virtual assets as tokenized assets within financial instruments for regulation. The application period is approximately seven to eight months and is primarily aimed at large institutions with financial qualifications. At the same time, DIFC offers a special channel for "innovation licenses," allowing purely technology development companies (not involving client funds custody or financial transactions) to be approved in about three months.

2. Virtual Assets Regulatory Authority (VARA): A regulatory body specifically established by the Dubai government that does not issue business licenses directly, but overlays virtual asset operating permissions onto existing company licenses. Its regulatory scope covers onshore companies in Dubai and free zone companies (excluding DIFC), authorizing specific virtual asset businesses through a licensing mechanism.

In addition, the Securities and Commodities Authority (SCA) is responsible for regulating ICOs and token issuance activities. Enterprises 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 a government agency established by the Dubai government to specifically regulate virtual assets. It is responsible for overseeing the virtual asset industry in Dubai (excluding DIFC), including cryptocurrency exchanges, virtual asset venture capital funds, NFT platforms, and more.

ADGM is a financial free trade zone with an independent regulatory system, and its Financial Services Regulatory Authority (FSRA) is responsible for regulating businesses that provide virtual asset-related services within ADGM.

jurisdiction

The jurisdiction of VARA is the Emirate of Dubai (excluding DIFC).

The jurisdiction of ADGM covers the Abu Dhabi Global Market and Al Maryah Island.

Regulation scope of virtual asset activities

The virtual asset activities regulated by VARA include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, investment trading as an agent, and also include NFT-related activities.

Virtual asset activities regulated by ADGM include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as a principal, but NFT-related activities are not within the scope of regulation.

Application Conditions and Requirements

1. Company Registration:

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

2. Office Space:

   • All require a physical office and do not accept shared desks.
   • VARA generally requires at least one desk for every two visas.
   • In general, ADGM requires at least one desk for every three visas.

3. Regulatory Capital:

   • VARA's regulatory capital requirements range from $11,000 to $27,000, with a maximum of $408,000, or 15%/25% of fixed annual expenses, depending on the type of virtual asset activity.
   • ADGM has an operating expense (OPEX) cycle of 6 to 12 months depending on the type of activity.

Application Process and Time

The application process for VARA includes preparing a compliant business plan, conducting an initial meeting with VARA, submitting materials as required, reviewing materials, making operational adjustments as per conditions, conducting a second review, and issuing a license, among other steps. The time required to obtain a business license generally takes 4-8 months. The document checklist includes an overview of virtual asset services, KYC documents for company directors and shareholders, financial forecasts, and other regulatory documents required by VARA.

The application process for ADGM includes conducting due diligence and discussions with the FSRA team, submitting a formal application, obtaining in-principle approval, obtaining final approval, and conducting "operational launch" testing, with an application time generally around 6 months. The document checklist includes a business plan for virtual asset services, KYC documents for company directors, shareholders, and other key personnel, financial projections, and other regulatory documents required by ADGM.

required fee

The application fee for VARA ranges from $11,000 to $27,000, while the ongoing supervision fee varies depending on the activity, ranging from $22,000 to $55,000.

The application fee for ADGM ranges from $20,000 to $125,000, and the ongoing supervision fee varies depending on the activity, ranging from $15,000 to $60,000.