UAE strengthens regulatory oversight of virtual asset service providers
The Central Bank of the United Arab Emirates (CBUAE) and other relevant authorities in the Middle Eastern country have issued new joint guidance for virtual asset service providers (VASPs) operating within the UAE.
Pushing back against unlicensed VASPs
These guidelines aim to prevent VASPs from operating without proper licenses in the jurisdiction, demonstrative of the country’s efforts in fighting financial crimes and maintaining the integrity of its financial system.
The document outlines the penalties for VASPs operating in the UAE without a valid license. They will face civil and criminal sanctions, including financial penalties against the entity, its owners and senior managers. Moreover, the guidance cautions that licensed financial institutions (LFIs), designated non-financial businesses and professions (DNFBPs) and licensed VASPs that engage with unlicensed VASPs will be subject to law enforcement actions.
The National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee (NAMLCFTC) is the specific entity responsible for having issued the guidance in conjunction with the central bank.
VASP ‘red flags’
As part of those guidelines, a list of “red flags” for VASPs has been included. Through reliance on these indicators, it’s hoped that bad acting VASPs can be identified by consumers and other industry stakeholders. The document refers to red flags such as the lack of regulatory licensing, no physical presence in the UAE, pressure being applied by a platform to invest quickly and a lack of regulatory disclosure as items to look out for.
Otherwise, the guidance encourages stakeholders to be suspicious of unsolicited contact being employed as a means of operation by a platform, the lack of a record of compliance, poor website and communications and the offer of unrealistic promises.
Lastly, the document suggests that people should be observant of any illicit use of virtual currency, the use of fake wallets, engagement in terrorist financing and a lack of consumer protection as red flag items.
The new guidance instructs all LFIs, DNFBPs and licensed VASPs to report transactions involving suspicious parties. The guidance also emphasizes that information related to unlicensed virtual asset activities can be reported through whistleblowing mechanisms.
Exiting FATF ‘grey list’
The release of these guidelines is part of an effort by the UAE to be removed from the Financial Action Task Force’s (FATF) “grey list.” The grey list indicates deficiencies in a country’s anti-money laundering (AML) and counter-terrorist financing (CTF) regimes.
Improving control mechanisms relative to crypto has been a theme for several countries who are similarly looking to exit the FATF grey list. Last week, it emerged that Turkey is crafting new regulations governing crypto in an effort towards “grey list” removal. Earlier this year, Pakistan announced a renewed ban on cryptocurrency, as part of its efforts to remain off the grey list it had been listed on over an extended period.
The UAE was placed on the FATF’s grey list in March 2022 due to AML and CTF deficiencies. However, the country made a commitment to work with the global watchdog to improve its regulatory frameworks in these areas.
