Unlicensed Crypto Companies in The UAE to Face Criminal Penalties

In a significant move, the UAE National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organisations Committee (NAMLCFTC) joined forces with entities like the Central Bank of UAE to address the issue of unlicensed virtual assets service providers (VASPs). This collaboration resulted in guidelines issued on November 6, outlining stringent penalties for unlicensed VASPs, extending to both the entities and their leadership.

The regulatory push is evident in the commitment of authorities like the Dubai Virtual Assets Regulatory Authority (VARA), which set a November 17 deadline for legacy VASPs in Dubai to complete their application process. Failure to comply will result in enforcement actions from VARA. Over 1000 legacy VASPs have already initiated the registration process.

Regulators are taking a strong stance against unlicensed VASPs, with VARA having already implemented actions such as public warnings, monetary penalties, and enforcement notices against non-compliant companies.

The UAE provides licensing options for various crypto businesses, covering OTC platforms, crypto exchanges, broker-dealers, custodians, advisory firms, and asset managers. Token issuance and proprietary trading fall under regulatory oversight, even if specific licenses may not be mandatory for these activities.

Licensed VASPs operating in a regulatory-compliant manner stand to gain numerous advantages, including regulatory certainty, access to a global ecosystem, and business opportunities from institutional players favoring licensed entities. Operationally, licensed VASPs enjoy advantages such as smoother access to bank accounts and other service providers. Recent incidents where unlicensed VASPs were asked to withdraw their mobile applications due to a lack of a valid license underscore the risks faced by non-compliant entities, including potential denial of access to financial services.

Given these regulatory and market dynamics, obtaining the right licenses has become essential for VASPs. Preparation for licensing involves implementing robust internal systems and controls, covering aspects like investor protection, market abuse, cyber security, and risk management. Legal advisories assist VASPs in developing readiness for licensure, from defining business models to establishing the necessary guardrails for compliance.

Amid these developments, AML/CFT compliance remains a primary focus for UAE regulators. Comprehensive frameworks have been established by federal authorities and free zones, with civil and criminal penalties for non-compliance. VASPs must ensure robust policies, systems, and controls to align with AML/CFT laws, with established AML/KYC technology providers in the UAE ecosystem offering services to meet regulatory requirements.

The UAE’s nuanced regulatory framework offers clarity on both regulatory and operational aspects, with VARA providing detailed requirements on keys and wallet management, corporate governance, cyber security, and information security. For crypto exchanges, VARA’s laws offer clarity on margin trading. This regulatory approach has positioned the UAE as a preferred jurisdiction for VASPs, attracting leading global players and traditional financial companies entering the virtual assets sector. Licensed VASPs in the UAE stand to benefit significantly from this dynamic and forward-thinking ecosystem.

KARM Legal Consultants, a UAE-based law firm specializing in the tech sector, provides advisory services to companies in areas such as VASPs, fintech, and emerging technologies. Senior Associate Praveena Pechetti and Associate Bryce Mendonca contribute to the firm’s expertise in navigating the evolving legal landscape.

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