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The SVF Regulation makes provision for crypto assets The UAE has been touted as the rising crypto capital of the world. With the establishment of the Virtual Asset Regulatory Authority last year, the UAE declared itself as a frontrunner and a future home for the growing multibillion-dollar industry. One of the key regulators in the UAE is the Central Bank of the UAE. The CBUAE published the Stored Value Facilities Regulation in 2020 and subsequently issued the Retail Payment Services Regulation which also includes provisions on crypto assets. This has been part of the UAE’s push to facilitate financial services and encourage fintech and easier cross-border transactions. This includes the introduction of the Virtual Assets Regulation, the Retail Payment Services and Card Schemes Regulation, the SCA’s approval of the Issuing and Offering Crypto Assets Regulation which details the issuing, creation and marketing of crypto assets within the region, crypto fundraising platforms and all activities relating to them. The SVF Regulation in particular has been of particular interest to crypto companies, looking to offer payment service solutions to the growing crypto users in the jurisdiction. Indeed, speaking to leading players in the crypto space, Filippo Buzzi, the Regional Director for MENA for Hex Trust, a licensed custodian told us: “The legal framework provided by UAE authorities for VASPs deserves recognition, as it allows them to operate in a fully compliant manner. In today’s fast-growing virtual assets industry, it is essential for regulators to establish a secure and stable environment for crypto companies. This will support growth and ensure investors’ protection.” What is an SVF? This is a non-cash facility that a customer can use to prepay money that can later be used for the payment of goods and services. The simplest way to think about this is a points card or a debit card that allows a user to store money (value) in this card and then continue to use it for purchases, until the money runs out, at which point it would need to be ‘topped up.’ Why was the SVF Regulation released? The main objective of the SVF Regulation is to license entities that issue or provide SVFs in the UAE by outlining the licensing, supervisory, and enforcement requirements around SVF in the UAE, and when used on a cross-border basis. However, the SVF Regulation does not apply to SVF providers in the Financial Free Zones of the UAE, which include the Dubai International Financial Centre and the Abu Dhabi Global Market. How does the CBUAE accommodate crypto payment providers? As part of the UAE’s harmonized approach to encourage and support the crypto sector in the country, the CBUAE has demonstrably included crypto solutions and payment options within the SVF Regulation. Crypto Inclusivity The SVF Regulation makes provision for crypto assets and defines them as “cryptographically secured digital representations of value or contractual rights that use a form of distributed ledger technology and can be transferred, stored or traded electronically.” This is a great progression, especially in light of the CBUAE’s recent introduction of Central Bank Digital Currencies and the various regulations and legislation that have been passed with the aim of regulating crypto and other virtual assets. This includes VARA’s various rulebooks and the RPSCS Regulation, which also makes reference to crypto assets backed by fiat currency (i.e., stablecoins) and the introduction of payment tokens. Crypto Equality Previously, under the Regulatory Framework for Stored Value and Electronic Systems (SVF Framework), there were four categories of payment service providers. However, this has now been replaced by a single licensing category, the SVF License. This is a welcome development from the CBUAE as it not only streamlines the process and prevents the creation of a hierarchy, but by allowing crypto payment providers to be included, it also seeks to normalize the use of such crypto payment solutions with fiat payment solution providers. Crypto Support One of the biggest barriers to entering into the payment services sector in the UAE was the high minimum paid-up capital requirement for companies seeking CBUAE approval. This was traditionally set at AED50 million. However, most crypto companies do not have the liquidity to be able to afford this, and indeed, most Series A funding rounds would be hard-pressed to provide such a high amount to be spent purely for a license. The capital requirement has now been reduced to AED15 million, which means that more companies can enter the market and crucially, successful startups with strong funding support have a real chance to apply for and obtain an SVF license. Crypto Security It is no secret that after Terra Luna and FTX collapsed and the sleuth of negative headlines around Web3 companies, there is nervousness around crypto. The UAE has always prioritized sensible business regulations with strong compliance measures. Any company looking to acquire an SVF license, including crypto companies, must satisfy the seven independent assessments under the SVF Regulation for: technology risk management, corporate governance and risk management, float management, payment security management, business continuity management, business conduct and customer protection, and AML/CFT control systems. If any company wishes to operate with an SVF license, then it is purporting to enter into a serious line of business where if it defaults, it is ultimately consumers who will suffer the most. Moreover, without adequate protections and controls, SVF can become a hotbed for money laundering. Adequate control measures are intrinsic to ensure proper protection of consumers and the market. Conclusion The table has been set and much like the other regulators in the UAE, the CBUAE has created a solid framework to allow crypto companies to thrive while ensuring that consumers are protected. Few companies have managed to successfully complete the rigorous SVF regulatory process under the auspices of the CBUAE which has a reputation for high quality and only allows the strongest companies to come through. “See the original publication: