UAE SCA releases English version of Crypto Assets, exchange and custodian legislation

Weeks after the UAE Securities and Commodities Exchange issued their announcement and Arabic crypto assets legislation,  the SCA has issued the English version, which can be found in the this article below. This is a huge move given that it provides legislation for crypto assets, exchanges, and custodial services onshore within the country and not within free zone areas. The UAE SCA regulation aims to regulate the offering, issuing, and trading of crypto assets in the state and its related financial activities.

As per our previous articles, the SCA has defined in its law a crypto asset as the following, “A record within an electronic network or distribution database functioning as a medium for exchange, storage of value, unit of account, representation of ownership, economic rights, or right of access or utility of any kind, when capable of being transferred electronically from one holder to another through the operation of computer software or an algorithm governing its use.”

The UAE SCA also defined security tokens  as a security to the extent issued, transferred or traded in the form of a Crypto Asset or a Crypto Asset that is deemed to be a Security pursuant to Article (4) of this Regulation, subject to the exclusion stipulated in in Article (3/ Second/ 3) of this Regulation.

While it defined commodity tokens as any crypto Asset that is not a Security Token and Regulated Commodity token as Commodity Token designated as a Regulated Commodity Token under Article (11) of this Regulation or any other Commodity Token listed and traded on a Crypto Asset Exchange in any jurisdiction to the extent promoted, offered and/or issued in the State or the subject of any other financial activities conducted in the State.

The law also discussed loyalty scheme which can utilize commodity tokens as a reward for purchase of consumer products.

In addition the law also defines crypto asset exchanges as a “platform or facility for the trading, conversion and/or exchange of Crypto Assets in return for other Crypto Assets, fiat currency, Securities and/or Commodities, which applies non-discretionary trading and/or order matching rules, or which brings potential buyers and sellers together (regardless of whether any resulting transaction is executed on the platform), or which is deemed to be a Crypto Asset Exchange under Chapter (6) of this Regulation, and is not otherwise excluded from being a Crypto Asset Exchange under Chapter (6) of this Regulation or is approved or licensed as a Crypto Fundraising.”

As for Crypto Asset Custody Services the law considers the following activities as part and parcel of crypto custody services, A) In respect of Security Tokens and Regulated Commodity Tokens, any activity that would be considered Custody Services in respect of Crypto Assets if the Crypto Assets were Securities or commodities; B) Services to control, safeguard, or manage private cryptographic keys (or equivalent) associated with Crypto Assets for or on behalf of any person; and C) Other services, where the service provider holds, takes responsibility for or otherwise conducts control, safeguarding, or management of Crypto Assets for or on behalf of any person.

The law also discusses Crypto Fundraising platform which is defined as an electronic platform accessible online through which a facility is available for persons to commit funds to subscribe for Crypto Assets.

The SCA legislation talks about the definition of virtual currency, digital currency which will need to be approved by Central Bank pursuant to its regulations that are issued from time to time.

As for who can trade in crypto assets, it is made clear that only accredited investors and investment firms  can invest. Crypto assets have to be listed and available for trading on more than one crypto asset exchange.

UAE has now joined countries such as Bahrain, Singapore, Malta, Estonia, Switzerland and others as one of the few countries who have regulated crypto assets and crypto trading.