Advising and creating the roadmap for the set-up of a crypto fund, broker-dealer and custodian in the UAE

Introduction

An internationally regulated fund and industry leader (“Client“) was exploring the establishment of an entity in the United Arab Emirates (“UAE“) to offer various virtual asset services. The Client planned to provide various services, including asset management, broker/dealing, proprietary trading, virtual asset ETF issuance, market-making, lending/borrowing, custody, and incubation and development of ecosystem partners/portfolio companies.

Client Challenge

The Client’s principal challenge was navigating the UAE’s complex regulatory landscape for virtual asset service providers (VASPs). The UAE has several regulators at the federal and emirate levels, each with a bespoke framework for regulating VASPs. The Client had to be mindful of the different regulatory options and determine the most suitable approach to obtain the necessary licences for its proposed activities while adhering to applicable laws.

Strategies, Tactics, and Solutions

Our legal team comprehensively analysed the regulatory frameworks available in the UAE for the Client’s proposed activities. We evaluated the offerings of various regulators, including the Central Bank of the UAE (CBUAE), the Securities and Commodities Authority (SCA), the Virtual Asset Regulatory Authority (VARA), the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM), and the Dubai Financial Services Authority (DFSA) in the Dubai International Financial Centre (DIFC).

Based on our assessment, we recommend that the Client consider the tried-and-tested FSRA framework in the ADGM. The FSRA offers a well-established framework for virtual asset activities, including specific regulations for multilateral trading facilities, brokers, custodians, asset managers, and other intermediaries dealing not just in virtual assets but also in securities, and certainly covering a situation where an applicant wishes to cover both.

Outcomes

Our analysis outlined two viable options for the Client to obtain the necessary licences from the FSRA to conduct its proposed short-term services. These include managing assets and arranging deals in investments (broker services only) or managing assets and dealing in investments as principal (broker and dealing services). We provided detailed cost estimates for each option, considering license fees, capital requirements, and other associated (and hidden) expenses.

Additionally, we evaluated the licensing options and costs under VARA’s regulatory framework for the Client’s short-term, medium-term, and long-term goals. While VARA offers licences specifically tailored for virtual asset activities, certain aspects, such as leverage trading rules, were uncertain, and the overall framework is still relatively new compared to the FSRA’s more established regime.

Ultimately, our analysis safeguarded the Client’s interests by outlining the regulatory landscape and the associated costs and requirements for obtaining the necessary licences to operate in the UAE. The Client could decide on the most suitable regulatory approach, considering factors such as licence integrity, international recognition, regulatory robustness, and overall ease of dealing with the regulator.