UAE Law and Practice Contributed by: Stefan Mrozinski, Gabrielle Margerison (nee Lowe) and Arnold Krutilins, White & Case LLP
In the DIFC, the DFSA’s regulatory framework captures crypto token derivatives. The rules governing crypto token derivatives are set out in the DFSA General Rulebook Module. The DFSA General Rulebook Module sets out a number of requirements including requiring authorised firms to carry out an appropriateness assess - ment of a retail client and form a reasonable view that the person has: • adequate skills and expertise to understand the risks involved in trading crypto token derivatives; and • the ability to absorb potentially significant losses resulting from trading in crypto token derivatives. Other restrictions relating to crypto token deriva - tives are also prescribed. In the ADGM, in line with the FSRA’s treatment of virtual assets as commodities, derivatives of virtual assets are regulated as commod - ity derivatives and, as such, are classified as a type of “specified investment” under the FSMR. Consequently, any market operators or market intermediaries in the ADGM dealing or managing investments in derivatives of virtual assets are subject to the appropriate regulations and rules applicable under the FSMR. 10.9 Decentralised Finance (DeFi) There are no regulations that specifically govern decentralised finance (DeFI) in the UAE. 10.10Regulation of Funds Funds are regulated in both “onshore UAE” and “offshore UAE” . A fund will fall within the scope of a UAE financial services regulatory author - ity’s licensing framework by virtue of operating as such. Specific rules apply for particular types of investments.
The ADGM has a comprehensive virtual asset framework, which governs financial activities including collective investment funds invest - ing in regulated digital assets. The virtual asset framework imposes certain additional regula - tory obligations upon fund managers managing funds investing in regulated digital assets when it comes to periodic statements, capital require - ments and technology governance and controls. The DIFC’s virtual asset framework also imposes certain additional regulatory obligations upon fund managers managing funds investing in regulated tokens. 10.11Virtual Currencies As a point of difference, virtual assets used for payment purposes, including stored value facili - ties, except those approved by the CBUAE for listing and trading purposes, are excluded from the VA Decision and fall exclusively under the jurisdiction of the CBUAE. By definition, this applies to cryptocurrencies. 10.12Non-Fungible Tokens (NFTs) NFTs are governed by a number of the UAE’s regulatory frameworks, including under the VA Decision. The VA Decision defines a virtual asset as a digital representation of value that can be digitally traded or transferred and can be used for investment purposes. This does not include the digital representation of fiat currency, securi - ties or other assets. To the extent that an NFT does not represent a physical asset, it appears to fall under this definition. NFTs also fall within the definition of virtual assets provided by the DVAL, which defines a virtual asset as a digital representation of the value that can be digitally traded or transferred, or can be used as an instrument for exchange, payment or investment purposes, including virtual tokens,
925 CHAMBERS.COM
Powered by FlippingBook