In recent years, crypto-assets have rapidly increased in popularity among both private and institutional investors and become an asset class of their own. In response, policy makers, governments and regulators around the world have sought to tackle the risks arising from this new asset class, and protect investors while still encouraging innovation to thrive. 

Policy makers, governments and regulators in different jurisdictions have taken varied approaches to crypto-assets, and activities related to them. Some like China and India have banned crypto-asset related activities almost entirely. Others have sought to apply existing financial regulations to crypto-asset related activities (like some European countries and the United States. And a few countries like Switzerland, Liechtenstein and Malta have embraced this new industry by creating crypto-friendly regulatory frameworks with the aim of positioning themselves as crypto-hubs.

In this comparative guide, we look at the latest developments and different approaches that policy makers, governments and regulators in the European Union (EU), United Arab Emirates (UAE) and United Kingdom (UK) are taking when it comes to the regulation of crypto-assets in their respective jurisdictions.

The EU 

With a population of nearly 450 million people and combined GDP of almost EUR15 trillion, the EU sits alongside the United States as one of the wealthiest markets in the world. As such, it's a target for international expansion of businesses from almost every industry. 

Against this backdrop, during the ICO bull run of 2017 European investors were heavily targeted by the issuers and promoters of crypto-assets from around the globe who sought to gain access to the lucrative European market. 

In the absence of a common approach to the regulation of crypto-assets at the EU level, individual EU Member States have been trying to create national frameworks to address the gaps in regulation and supervision of the crypto industry in their respective jurisdictions.
Some jurisdictions, like Malta and the EU neighbouring country Switzerland, have used this opportunity to position themselves as crypto-friendly jurisdictions. Others like Germany have been more focused on imposing rather strict regulatory requirements on the crypto industry, similar to those applicable to financial institutions. 

These divergences in approach to the regulation of crypto-assets have created a significant degree of regulatory uncertainty for businesses looking to operate in the EU, who've had to navigate complex national frameworks in different EU Member States individually. 

View EU framework

The UAE 

The UAE has in recent years seen a number of legal developments in the area of regulating virtual assets. With the UAE being a federal state and the two largest emirates having designated financial service oriented free zones, there are multiple regulators involved, the most important ones being: 

• the UAE Central Bank (CB) and UAE Securities and Commodities Authority (SCA) that both have a mandate to regulate matters on a federal level for all emirates and typically also free zone territories, excluding the two financial centre free zones mentioned below
• the Dubai Financial Services Authority (DFSA) regulating financial services provision in the Dubai International Financial Centre (DIFC) free zone, the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) regulating financial service activity at the ADGM free zone  
• the Dubai Multi Commodities Centre Authority (DMCCA) having the supervisory role over the DMCC Crypto Centre established at the DMCC free zone
• the Dubai Virtual Assets Regulatory Authority (VARA), the latest addition to the list of regulators, which is affiliated with the Dubai Word Trade Centre Authority (DWTCA) and has been established to regulate any virtual asset-related activities in the emirate of Dubai (including the free zones, except the Dubai International Financial Centre (DIFC)). 

At the outset, when virtual assets started to gain interest from a broader public audience, the UAE-based regulators have taken different approaches to whether virtual assets shall be permitted within a regulated framework or prohibited altogether. 

Since 2018 the FSRA at the ADGM has already amended its laws and regulations to provide a framework for virtual asset-related activities and products. At that time the SCA, CB, and DFSA were opposed to virtual asset-related activities being permitted in the UAE. 

However, the SCA and CB changed their position in 2020-2021 and DMCCA was given authorisations by the SCA at the same time. Lastly, towards the end of 2021, the DFSA also revised its initial position and commenced issuing regulation to permit certain virtual asset-related investment activities to be undertaken from and within the DIFC. 

View UAE framework

Most recently, with the issuance of the Dubai Law No.4 of 2022 on the Regulation of Virtual Assets, the topic of virtual assets and related services provided has brought the emirate of Dubai back into the spotlight. Potential investors, either already acting in this space or intending to provide services in connection to virtual assets, are showing increasing interest in establishing or moving businesses to Dubai. 

 

They want to take advantage of the combined benefits of Dubai as a hub that serves the Middle Eastern, African and South Asian markets, offers a dynamic legal framework that's regularly updated to adapt to businesses’ needs in the digital space and generally attracts an increasing amount of talent from around the world, and invites international investors to use unique opportunities that are widely seen as second to none.    

Following some initial licences being granted to reputable providers, including two of the world’s largest cryptocurrency exchanges - Binance (receiving a licence to conduct some operations in Dubai in March 2022) and Kraken (receiving a licence to operate its virtual asset trading platform in Abu Dhabi in April 2022) - we envisage this trend will continue. 

Further changes to the legislative framework will certainly happen along the way as the digital assets market develops. As an example, ADGM’s latest consultation (that closed in May 2022) included a possible permission for regulated Multilateral Trading Facilities/Custodian groups within the ADGM to conduct non-fungible token activities. 

The UK

In April 2022, the UK Government announced its intentions to make the UK a 'global hub for cryptoassets technology' with a 'world-leading regime' for crypto-asset businesses. There are plans to bring fiat-backed stablecoins into scope of the UK's payment services regime, to bring certain 'qualifying crypto-assets' within scope of the UK's financial promotion regime, and to consult on the regulation of crypto-assets (including tokens like Bitcoin and Ether) more broadly.  

However, this does not mean that the crypto-asset sector is currently unregulated. Since January 2020, certain crypto-asset businesses, including exchanges, ATMs, custodial wallet providers, and even some issuers, have been within scope of the UK's anti-money laundering regime and subject to the requirement to register with the Financial Conduct Authority (FCA).  

Changes to the UK anti-money laundering regime, which are due to be in force from September 2022, will impact crypto-asset businesses further. After a 12-month grace period, crypto-asset exchange providers and custodial wallet providers will need to adhere to the Financial Action Task Force (FATF) 'travel rule' when transferring crypto-assets above the value threshold of EUR1,000. In addition, the FCA will be able to object to acquisitions of registered crypto-asset businesses if it assesses the acquiring firm or its beneficial owners are not 'fit and proper'.      

In addition, the UK's existing securities regime would apply to persons offering services in relation to certain tokens, where such tokens behave like existing categories of regulated investments such as shares, debt securities, and units in collective investment schemes (catching many initial coin offerings). In this review, we offer an overview of the regulatory landscape in the UK and changes which are expected in the near future. 

View UK framework