Regulatory Compliance for Virtual Asset Brokers in the UAE

Regulatory Compliance for Virtual Asset Brokers in the UAE

The Securities and Commodities Authority (SCA) of the UAE has recently issued comprehensive guidelines regulating Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs). These guidelines are crucial for entities seeking to offer virtual asset brokerage services within the UAE. This article provides a detailed and comprehensive overview of the regulatory requirements, operational obligations, and compliance measures for Virtual Asset Brokers as stipulated by the SCA.

Introduction

A Virtual Asset Broker acts as an intermediary facilitating the buying and selling of virtual assets between parties. This role includes executing orders, providing market insights, and ensuring compliance with regulatory requirements. The SCA’s guidelines, developed under the Cabinet Resolution No. (111) of 2022 and the Chairman of the SCA’s Board of Directors’ Decision No. (26/Chairman) of 2023, provide a robust framework for the operation of Virtual Asset Brokers.

Licensing Requirements

1. Obtaining a License:
   • Entities must apply for and obtain a license from the SCA to operate as a Virtual Asset Broker.
   • The licensing process involves demonstrating compliance with the SCA’s Rulebook, which encompasses multiple regulatory modules.
2. Capital Requirements:
   • A minimum paid-up capital of AED 2 million is required for entities applying for a virtual asset brokerage license.
   • Additionally, entities must maintain sufficient operating capital to cover six months of operational expenses.

Operational Requirements

1. Order Execution and Trade Recording:
   • Virtual Asset Brokers must establish robust operational systems to ensure efficient and transparent execution of trades.
   • Detailed records of all transactions must be maintained, including order execution times, prices, and volumes.
2. Transparency and Fair Access:
   • Brokers must provide fair access to trading information and ensure transparency in their operations.
   • All relevant trading data must be made available to clients to facilitate informed decision-making.

Technology and Security Measures

1. Secure Systems and Controls:
   • Brokers are required to implement multi-layered security protections to safeguard client data and assets.
   • This includes the use of encrypted keys, secure wallet storage, and comprehensive cybersecurity measures.
2. Regular Audits and Assessments:
   • Regular internal and third-party audits must be conducted to assess the security and integrity of technological systems.
   • Any vulnerabilities identified must be promptly addressed to prevent breaches and ensure continuous protection.

Compliance with AML/CFT Regulations

1. Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT):
   • Virtual Asset Brokers must adhere to the AML/CFT regulations as detailed in Module 5 of the SCA’s Rulebook.
   • Effective internal systems must be implemented to detect and report suspicious activities related to money laundering and terrorist financing.
2. Ongoing Training and Monitoring:
   • Continuous training on AML/CFT policies for all staff is mandatory.
   • Regular monitoring and updates to AML/CFT measures must be conducted to align with evolving regulatory requirements.

Consumer Protection and Risk Disclosure

1. Disclosure of Risks:
   • Brokers must provide comprehensive disclosures of all material risks associated with virtual assets to clients before any transactions.
   • This includes risks related to market volatility, technological vulnerabilities, and regulatory changes.
2. Continuous Risk Updates:
   • Brokers are required to continuously update risk disclosures to reflect current market conditions and emerging threats.
   • Clients must be fully informed about the potential risks involved in trading virtual assets at all times.

Market Conduct and Reporting

1. Preventing Market Abuse:
   • Measures must be implemented to prevent market abuse, including insider trading and market manipulation.
   • Brokers must ensure fair trading practices and compliance with all relevant market conduct regulations.
2. Transaction Reporting:
   • Brokers are obligated to report transaction details to the SCA in real-time and on a periodic basis.
   • Comprehensive records of all trading activities must be maintained and made available to the SCA upon request.

Client Fund Protection

1. Segregation of Client Funds:
   • Brokers must establish measures to protect client funds and virtual assets, ensuring they are segregated from the broker’s own assets.
   • This includes maintaining separate accounts for client funds and implementing robust custody arrangements.
2. Regular Reconciliation and Reporting:
   • Regular reconciliation of client accounts is mandatory to ensure accuracy and transparency.
   • Any discrepancies must be promptly reported to the SCA, along with actions taken to resolve them.

Conclusion

Offering virtual asset brokerage services in the UAE requires strict adherence to the SCA’s regulatory framework. By complying with these guidelines, brokers can ensure the integrity of their operations, protect client interests, and contribute to the overall stability and security of the virtual asset market in the UAE.

Entities seeking to operate as Virtual Asset Brokers must thoroughly review and implement the SCA’s requirements to obtain and maintain their licenses. Continuous compliance, robust operational controls, and transparent practices are essential to succeed in this regulated environment.

HOW CAN CRYPTOVERSE HELP YOU?

As the leading legal advisory firm for Blockchain, Web3, and Crypto startups in the UAE, we provide unmatched professional legal advice to navigate the evolving regulatory landscape of digital assets and the licensing process of VASPs in the UAE. From legal structuring, company registration to handling intricate legalities of token launch, NFTs and tokenization, our dedicated team ensures your ventures thrive without any regulatory issues. Dive deeper into how we can empower your blockchain ambitions by visiting our website:  www.cryptoverselawyers.io today and partner with us to legalise your projects!

DISCLAIMER.

The article is provided solely for educational and informational purposes and does not, under any circumstances, constitute legal, financial, or tax advice. The information herein is not intended to serve as a substitute for professional consultation. Readers are strongly encouraged to engage the services of competent professionals in the legal, financial, or tax fields to obtain advice pertinent to their specific situation before undertaking any action based on the content of this article.