The Dubai Virtual Assets Regulatory Authority (VARA) recently published its framework law for virtual asset regulation in Dubai, the Dubai Virtual Assets Law (Dubai VA Law). The law aims to regulate virtual assets and virtual asset service providers (VASPs). VARA was established by Law No. 4 of 2022.
A provision in the Dubai VA Law would prohibit the issuance of “anonymity-enhanced cryptocurrencies” and all virtual asset activities related to them in the Emirate of Dubai. The scope of what is meant by “all virtual asset activities” is unclear, and if also meant to apply to the peer-to-peer marketplace would only increase the concern and questions about lawful jurisdiction.
The global trend of governments moving away from the privacy features of digital assets is concerning and raises alarm bells. The generic term “anonymity-enhancing coins” undervalues the significance and protection provided by private financial transactions. This overlooks the reality that a vast majority of digital assets, including bitcoin, possess some level of anonymity-enhancing features, and many more digital assets are continually enhancing their privacy capabilities. This trend not only undermines the value of these assets but also the privacy rights of individuals and businesses. It is essential to recognize the crucial role that privacy features play in the digital asset landscape and take steps to preserve and enhance them.
In the Dubai VA law, anonymity-enhancing coins are defined as: “a type of Virtual Asset which prevents the tracing of transactions or record of ownership through distributed public ledgers and for which the VASP has no mitigating technologies or mechanisms to allow traceability or identification of ownership [emphasis added].”
In focusing on the bold language, the law itself recognizes that virtual asset service providers (VASPs) have a role to play in compliance with flexibility to consider their own risk-based solutions to list and support such coins.
Additionally, there is profound regulatory complexity as the law applies only within Dubai and not to the wider United Arab Emirates or the Dubai International Financial Centre. The Dubai International Financial Centre (DIFC) is a financial free zone in Dubai, United Arab Emirates. It was established in 2004 with the goal of providing a hub for international financial services in the Middle East, Africa, and South Asia. The DIFC is governed by its own independent courts, and its jurisdiction covers financial services, among other things.
These new provisions promulgated by VARA may impact VASP decision-making and need to be challenged and clarified. Electric Coin Co. is committed to responsible innovation and will continue to raise awareness of the danger to growth and innovation in Dubai posed by limiting privacy protections for its citizens. We look forward to further opportunities for discussion and clarification with the regulatory authority.