Dubai watchdog alarms on crypto risks, highlights gaps

Government of Dubai to support local crypto development and regulation

Countries across the globe are considering cryptocurrencies as a potential runners for capturing payment and settlement systems and trade settlement among countries. Countries such as Hong Kong, South Korea and other South Asian countries are playing an important role in establishing an ecosystem for smooth transmission to the system.

Middle Eastern countries Eastern UAE and Turkey are also peddling the wheels to establish a crypto ecosystem in the country. But it is important to note that with the implementation, the country is equally serious about the regulation of the assets in the country.

Recently, Dubai Financial Services Authority is planning to update the regulation of crypto tokens. The regulator of the authority also underlines the need to avoid “Bad Actors” in the system to avoid any breach. Elisabeth Wallace, an associate director of Dubai watchdog warns on risks of crypto’s global regulatory gaps.

Wallace highlighted at a virtual conference that there is a concern about numerous activities performed by various crypto businesses under one umbrella since there is a lack of regulation thus there are chances of bypassing the loopholes. Further, she underlines the importance of global regulatory norms. She coined that “They are across the whole world and as regulators, we need to talk to each other a lot more in this area because there can be quite a few gaps and we have seen a lot of bad actors trying to plug some of those gaps.”

The Middle East is one of the fastest growing cryptocurrency markets in the world, making up 7% of global trading volumes, according to Chainalysis, the UAE’s share in the global market is around US$25 billion in transactions, and it has increased 500% between July 2020 and June 2021. Regionally, the UAE ranks third by volume, behind Turkey which had US$132 billion in transaction volumes and close to Lebanon at US$26 billion. While the key reason for the high rate of crypto adoption in Turkey and Lebanon is value preservation, for the UAE, the increase in transaction volume is multifactorial, as explained next through the growth factors.

The UAE’s regulation is understood to be more about overseeing the crypto sector rather than curbing it. It is recognised that regulation is not always a deterrent and some risks associated with cryptocurrency, such as financial crime, can be mitigated by thoughtful regulation and thereby facilitate user adoption.

Cryptocurrency is legal in Dubai, but only to the extent that it complies with KYC/AML regulations and reporting obligations. Dubai is a country that has significantly evolved in adopting new technologies and cryptocurrency regulation. In this process, Dubai adopted a new direction in 2022 designed to clarify the regulation in the country. The Virtual Assets law handles all transactions involving virtual currencies and digital assets.

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