The Securities and Commodities Authority (SCA) of the UAE has issued comprehensive guidelines regulating Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs). This article provides a detailed overview of the regulatory requirements, operational obligations, and compliance measures for entities offering financial consulting in virtual assets under the SCA guidelines.
Introduction
Financial consulting in virtual assets involves offering advisory services related to virtual assets, providing insights and advice on investment potential, risks, and regulatory compliance. 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 entities offering financial consulting services.
Licensing Requirements
- Obtaining a License: Entities must apply for and obtain a license from the SCA to provide financial consulting in virtual assets. The licensing process involves demonstrating compliance with the SCA’s Rulebook, which encompasses multiple regulatory modules.
- Capital Requirements: A minimum paid-up capital of AED 500,000 is required for entities providing financial consulting services. Entities must also maintain sufficient operating capital to cover six months of operational expenses.
Operational Requirements
- Advisory Services and Client Engagement: Consultants must establish robust systems for providing accurate and comprehensive advisory services. Detailed records of all advice given and client engagements must be maintained.
- Transparency and Client Reporting: Consultants must provide regular reports to clients detailing the status of their investments and any relevant market insights. Transparency in advisory practices is essential to maintain client trust.
Technology and Security Measures
- Secure Systems and Controls: Consultants must implement multi-layered security protections to safeguard client data. This includes the use of encrypted communications and comprehensive cybersecurity measures.
- Regular Audits and Assessments: Regular internal and third-party audits must be conducted to assess the security and integrity of advisory systems. Any vulnerabilities identified must be promptly addressed to prevent breaches and ensure continuous protection.
Compliance with AML/CFT Regulations
- Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT): Consultants 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.
- 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
- Disclosure of Risks: Consultants 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.
- Continuous Risk Updates: Consultants 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 investing in virtual assets.
Market Conduct and Reporting
- Preventing Market Abuse: Measures must be implemented to prevent market abuse, including insider trading and market manipulation. Consultants must ensure fair practices and compliance with all relevant market conduct regulations.
- Transaction Reporting: Consultants are obligated to report transaction details to the SCA in real-time and periodically. Comprehensive records of all advisory activities must be maintained and made available to the SCA upon request.
Client Fund Protection
- Segregation of Client Funds: Consultants must establish measures to protect client funds and virtual assets, ensuring they are segregated from the consultant’s own assets. This includes maintaining separate accounts for client funds and implementing robust custody arrangements.
- 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 financial consulting in virtual assets in the UAE requires strict adherence to the SCA’s regulatory framework. By complying with these guidelines, consultants can ensure the integrity of their Advisory services , protect client interests, and contribute to the overall stability and security of the virtual asset market in the UAE.
Entities seeking to provide financial consulting services 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.
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.