Regulation is catching up with the world of digital assets and this year we can expect to see more movement, both in the UAE and globally, when it comes to regulation
The UAE has long seen the vast potential of digital assets, and the government of Dubai has its own blockchain strategy, which it says will save it around $1.5 billion a year on document processing in the United Arab Emirates. ministries. — Stock photo
Around the world, demand for digital assets is booming, not just in cryptocurrencies like bitcoin, ethereum, and stablecoins, but in newer instruments like non-fungible tokens (NFTs) and in decentralized finance (DeFi). Due to the distributed and often decentralized nature of the underlying technologies – blockchain-based ledgers – policymakers may face a challenge integrating digital assets into their regulatory frameworks.
But that’s not to say that innovative governments haven’t taken steps in the right direction. In early 2022, Dubai approved the Dubai Virtual Assets Regulation Act, aiming to establish “an independent authority to oversee the development of the best business environment in the world of virtual assets in terms of regulation, licensing and governance” . The UAE has long seen the vast potential of digital assets, and the government of Dubai has its own blockchain strategy, which it says will save it around $1.5 billion a year on document processing in the United Arab Emirates. ministries.
So, regulation is catching up with the world of digital assets and this year we can expect to see more movement, both in the UAE and globally, when it comes to regulation.
1. Fight against money laundering: The blockchain pseudonym has proven alluring to nefarious parties around the world, who laundered an estimated $8.6 billion worth of cryptocurrency last year, a 30% increase from the previous year. . If cryptocurrency is to gain wide acceptance, strong anti-money laundering (AML) rules are a prerequisite and the immutable nature of blockchains and their inherent transparency means that with the right technologies this can be accomplished.
The UAE’s introduction of laws for the digital asset sector was seen as the first step in a broader framework, with the initial focus on protection against criminal activity, and in particular money laundering. ‘silver. Indeed, the UAE has already implemented several AML measures recommended by the global standards body, the Financial Action Task Force (FATF), and has affirmed its commitment to full compliance with the standard, including within the framework of the creation of their own “Crypto valley” under the control of the DWTC.
At the international level, cross-border cooperation is essential if we want to increase the risk and costs of money laundering operations and make investigators more efficient. Today, virtual asset service providers (VASPs), such as crypto exchanges and custodians, employ compliance officers who are required to notify regulators and other government agencies of suspicious activity as well as maintain high standards of customer due diligence and transaction monitoring. When combined with effective information sharing between regulators in other countries, compliance levels as well as effective detection of non-compliant activities increase globally and in the long run, the industry becomes more sturdy and durable, allowing it to grow.
2. DeFi Regulation: Distributed ledger technologies like blockchain can facilitate decentralized systems through the use of smart contracts with pre-programmed rules, where there is no single central authority that controls the system as a whole. For digital assets, this means that certain services can be created, such as decentralized crypto exchanges, which can operate autonomously, and these services constitute the world of decentralized finance (DeFi).
Chainalysis’ DeFi Adoption Index records that the digital asset sector grew by more than 2,300% in the two years from Q3 2019 to Q2 2021, with total revenue in DeFi applications growing from 1 $.3 billion to $578.2 billion. The United Arab Emirates is ranked in the top third of countries in the Chainalysis index.
Unlike centralized services, however, in DeFi services there will not necessarily be a single person or entity controlling the entire system, and who could be responsible for compliance with legal requirements. Regulators have, however, started to make progress in setting standards to promote compliance in DeFi. The FATF has already issued guidelines for AML compliance in DeFi systems, while the draft European Union Regulation on Crypto Asset Markets (MiCA) also includes provisions related to DeFi.
3. Consumer Protection: Consumer adoption is increasing significantly with global adoption up 880% in the twelve months to June 2021. With the volatility that often accompanies growth in this sector, regulators are keen to ensure that Investors in this space are aware of the risks through proper disclosures. , and that there are clear prohibitions on misleading advertising.
Throughout 2022, we expect greater involvement from regulators, agencies and international organizations to educate consumers and protect them from harm so they can thrive in the digital asset market. Already, in the United Arab Emirates, Article 48 of the Online Safety Law warns of prison terms and fines of between $5,000 and more than $135,000 for unofficial cryptocurrency dealers or unlicensed.
4. Stablecoins and CBDCs: Stablecoins – virtual currencies pegged to real-world currencies or commodities – are becoming increasingly popular, as central banks around the world explore whether and how to issue digital currencies from the Bank central (CBDC). The Bank for International Settlements (BIS) reported in 2021 that 86% of the more than 60 central banks it surveyed were now exploring a CBDC, with a variety of different models under consideration.
The Central Bank of the United Arab Emirates recently announced its roadmap for the introduction of its CBDC by 2026, alongside its intention to be among the world’s leading banking regulators.
Change, as a constant: The digital asset ecosystem continues to evolve, and the policies around it will need to evolve as well, to provide the necessary protections for market stability and participant trust, as well as to allow innovation to thrive. We should expect to see more initiatives such as the EU’s MiCA regulation, as well as discussions on how to frame ESG (environmental, social and governance) measures for the sector. As the industry continues to grow and evolve, it will be up to all stakeholders, working together, to find solutions.
There is every reason to be optimistic about our crypto future. Digital assets have many benefits to offer, allowing value to be transferred with nearly the same transparency and speed as information traveling over the internet. The signs show that governments are taking the right steps to clarify the rules, protect players and support growth. Expect great things to come.
Caroline Malcolm is Head of International Public Policy and Research at Chainalysis. The opinions expressed are his own and do not reflect the policy of the newspaper.