UAE implements new regulations to tidy up the cryptocurrency market.

• New regulations target ‘stablecoins’
• Digital assets linked to the dirham
• Licensing will be handled by CBUAE

The UAE has initiated measures to regulate its payment landscape through the introduction of Payment Token Services Regulation, focusing on eliminating fraudulent crypto firms and fostering legitimate ones.

The new rules set forth by the Central Bank of the UAE (CBUAE) emphasize stablecoins, which are digital currencies linked to real-world assets such as the UAE dirham.

This marks a significant change from previous ambiguities in regulation, which “led to various issues and frauds,” as noted by Raymond Kisswany, a partner at Davidson & Co Law Firm in Dubai.

“The UAE is opting for a regulatory approach instead of outright prohibitions,” Kisswany remarked.

Earlier, stablecoins that were not backed by the dirham were governed by Dubai’s Virtual Assets Regulatory Authority, which was established in 2022.

Now, the CBUAE will oversee the issuance of licenses and regulation of all dirham-backed stablecoins.

“Crypto businesses will not need to exit the nation if they understand the [new] process,” Kisswany stated.

The CBUAE’s regulations require payment tokens in the UAE to be backed by UAE dirhams and to avoid connections to other currencies.

“These regulations are intended to create a secure and efficient digital payment environment,” Kisswany emphasized.

The stablecoin licensing framework will also entice established financial institutions like banks to venture into the crypto landscape, according to Arushi Goel, policy lead at Chainalysis, a US-based blockchain research firm.

“Regulations surrounding stablecoins could facilitate integration with current financial services and payment systems,” she noted.

These regulations do not pertain to retail payment services or the oversight of “stored value facilities” such as debit, credit, or prepaid cards or digital wallets, as these areas fall under a separate regulatory framework.

IT security services, communication network services, and specific internal transfers within payment systems are also exempt.

The CBUAE’s initiative to regulate dirham-backed stablecoins marks a step toward establishing a comprehensive framework that instills confidence in the market.

“Although the new regulations are extensive, they should enhance transparency and protection within the market,” Kisswany stated.

Any crypto entity dealing in tokens must complete the CBUAE registration process.

“Legitimate businesses will find it easy to qualify, which will help eliminate those with dishonest intentions,” Kisswany concluded.