UAE to Penalize Unlicensed Virtual Asset Service Providers

In the latest haute couture of financial regulation, the United Arab Emirates (UAE) has strutted out with a new accessory: penalties for virtual asset service providers (VASPs) that dare to walk the runway without the season’s must-have accessory—a proper license. The Central Bank of the UAE, doubling as the fashion police of the fintech world, has published new guidelines that are the regulatory equivalent of a stern look over a pair of spectacles.

The UAE, not content with being merely a picturesque backdrop for skyscrapers and shopping festivals, has decided to tidy up its financial closet. The National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organisations Committee (NAMLCFTC), which could also double as a complex tongue-twister, has issued guidance that is the regulatory equivalent of a “No Trespassing” sign for unlicensed VASPs.

The guidance, which could be likened to a list of fashion faux pas, includes “Red Flags” such as a lack of regulatory license, promises that are as unrealistic as a pair of high heels on a hiking trip, and communications that are as clear as a heavily sequined evening gown in a boardroom meeting. The central bank has made it clear that any VASPs operating without a license will face the financial equivalent of being banished from the front row at Fashion Week.

His Excellency Khaled Mohamed Balama, governor of the CBUAE and chairman of the NAMLCFTC, has said that this new guidance is as timely as a summer collection launch in spring. As the digital economy matures, like a fine wine or a well-aged cheese, the UAE is intensifying its efforts to combat financial crimes, ensuring the financial system remains as pristine as the white sands of its beaches.

To embark on the journey of becoming a licensed Virtual Asset Service Provider in the UAE, one must first engage in a regulatory waltz with the Central Bank of the UAE (CBUAE) and other relevant authorities. The initial steps involve a deep dive into the Financial Services Regulatory Authority’s (FSRA) guidelines, ensuring compliance with the Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) standards set forth by the UAE. This is followed by a meticulous application process that requires a thorough demonstration of operational readiness, the robustness of financial and risk management policies, and a clear commitment to upholding the integrity of the UAE’s financial system. Once the application is polished to perfection, it is submitted for the scrutiny of the regulators, who will assess the application against the backdrop of the UAE’s ambitious vision for a secure and thriving digital economy. Successful applicants will receive the regulatory nod in the form of a license, granting them entry into the UAE’s burgeoning digital asset arena.

The UAE’s move to penalize unlicensed VASPs is part of a broader charm offensive to be removed from the Financial Action Task Force’s (FATF) “grey list,” a list that is as undesirable as last season’s trends. The country was placed on this list due to deficiencies in its Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regimes, which is akin to having a stain on your designer suit.

UAE lawyer Irina Heaver has commented that the UAE has been enacting significant reforms, like a personal trainer overhauling a client’s lifestyle, since its placement on the grey list in 2022. With these new updates to its AML and CTF frameworks, the UAE is hoping to exit the grey list as smoothly as a model on a catwalk.

UAE is enforcing its new guidelines with the determination of a catwalk diva. Unlicensed VASPs should beware; the UAE is watching you like a hawk with a taste for haute couture, ready to swoop down on anyone who doesn’t accessorize with the right regulatory licenses.