Regulation is catching up with the world of digital wealth, and it is expected that regulatory issues will increase both in the United Arab Emirates and around the world this year.
The United Arab Emirates has long seen the wide range of possibilities for digital assets. The Dubai government has its own blockchain strategy and believes that it can save about $ 1.5 billion annually in document processing across the government sector. — File photo
Around the world, demand for digital assets is skyrocketing not only in cryptocurrencies such as Bitcoin, Ethereum and Stablecoin, but also in new devices such as non-fungible tokens (NFT) and decentralized finance (DeFi). Because the underlying technology (blockchain-based ledger) is decentralized and often decentralized, policy makers may face challenges in integrating digital assets into the regulatory framework.
But that doesn’t mean that innovative governments aren’t moving in the right direction. In early 2022, Dubai approved the Dubai Virtual Assets Control Act with the aim of establishing an “independent body that oversees the development of the world’s best business environment for virtual assets in terms of regulation, licensing and governance”. Did. The United Arab Emirates has long seen the wide range of possibilities for digital assets. The Dubai government has its own blockchain strategy and believes that it can save about $ 1.5 billion annually in document processing across the government sector.
As a result, regulation is catching up with the world of digital assets, and it is expected that regulatory issues will increase both in the United Arab Emirates and around the world this year.
1. Anti-money laundering: The blockchain pseudonym proved attractive to malicious parties around the world who laundered an estimated $ 8.6 billion of cryptocurrencies last year. This was a 30% increase over the previous year. Robust anti-money laundering (AML) rules are a prerequisite for the widespread acceptance of cryptocurrencies, and the immutable nature of blockchain and its inherent transparency represent the right technology.
The introduction of law in the digital asset sector by the United Arab Emirates was seen as the first step in a broader framework that first focused on protection from criminal activity, especially money laundering. In fact, the UAE has already implemented some AML measures recommended by the Financial Action Task Force (FATF), a global standards-setting body, and as part of its own establishment, has committed to fully meeting the standards. Confirming. “Crypto Valley” under the control of DWTC.
At the international level, cross-border cooperation is essential to increase the risks and costs of laundry operations and to make investigators more effective. Today, virtual asset service providers (VASPs) such as crypto exchanges and custdians need to notify regulatory agencies and other government agencies of suspicious activity and maintain high standards in terms of customer due diligence and transaction monitoring. We hire a compliance officer. Combined with effective information sharing between regulatory agencies in other countries, the level of compliance and effective detection of non-compliance activities will increase globally, making the industry more robust, sustainable and growing in the long run. make it possible.
2. DeFi regulation: Distributed ledger technology, such as blockchain, can facilitate distributed systems by using smart contracts with pre-programmed rules that do not have a single central authority to control the entire system. For digital assets, this means that you can create specific services such as decentralized cryptocurrency exchanges that can be performed autonomously, and these services make up the world of decentralized finance (DeFi).
Chainalysis’s DeFi Adoption Index records that the digital asset sector has grown by more than 2,300% in the two years from the third quarter of 2019 to the second quarter of 2021, and the total revenue of DeFi apps has surged from $ 1.3 billion to $ 578.2 billion. doing. The United Arab Emirates is ranked in the top third of the country in the Chain Analysis Index.
However, unlike centralized services, DeFi services do not necessarily have a single individual or entity that controls the entire system and are responsible for ensuring that legal requirements are met. However, regulators are beginning to set standards to promote DeFi compliance. Although the FATF has already issued guidance on AML compliance in DeFi systems, the European Union Cryptocurrency Market Regulations (MiCA) draft also includes provisions related to DeFi.
3. Consumer protection: Consumer recruitment has increased significantly, with global recruitment increasing by 880% in the 12 months to June 2021. Due to the growth volatility of this sector, regulators are enthusiastic about enabling investors in this area to recognize risk through appropriate disclosure. , And misleading advertising have clear prohibitions.
Throughout the rest of 2022, regulatory agencies, government agencies, and international organizations are expected to become more involved in raising consumer awareness, protecting them from danger and helping them thrive in the digital asset market. Already in the UAE, Article 48 of the Online Security Act warns informal or unlicensed cryptocurrency dealers of imprisonment and fines of $ 5,000 to $ 135,000 or more.
4. Stablecoin and CBDC: While stablecoin (a virtual currency fixed to real-world currencies or commodities) is gaining in popularity, central banks around the world will issue and how to issue the Central Bank Digital Currency (CBDC). I’m looking for. In 2021, the Bank for International Settlements (BIS) showed that 86% of the more than 60 central banks surveyed were surveying CBDCs considering different models.
The UAE Central Bank recently announced a roadmap for implementing CBDC by 2026. We also aim to be one of the world’s top banking regulators.
Changed as a constant: The digital asset ecosystem is still evolving, and the policies surrounding it need to evolve in order to ensure market stability, the protection needed for the trust of participants, and the prosperity of innovation. We should expect to see discussions on initiatives such as EU MiCA regulations and how to formulate ESG (environmental, social, governance) indicators for the sector. As the industry grows and evolves, finding a solution will be a collaborative effort by all stakeholders.
There are all reasons to be optimistic about the future of our cryptography. Digital assets have many advantages and can convey value with the same transparency and speed as information flows over the Internet. The symptom is that the government is taking the right steps to clarify the rules, protect players and support growth. Expect great things in the future.
Caroline Malcolm is responsible for Chainalysis’s International Public Policy and Research. The views expressed are his own and do not reflect the policy of the newspaper.
