11 Sep 2023

Regulation Focus Series | Article 8: The UAE and the CBUAE

The United Arab Emirates (UAE) is rapidly emerging as a global leader and major hub of digital finance. With its world-class infrastructure, progressive regulatory environment and strong financial institutions, the UAE has become an ideal location for traditional finance and asset trading — as well as many pioneering fintech and crypto projects.

As one of the most business-friendly countries in the Middle East, the UAE has attracted major tech companies and investors and is increasingly serving as a base for fintechs and crypto companies to run their global operations. This has led to substantial progress in the Emirates’ status, with a vibrant ecosystem that is opening up a range of new opportunities for businesses looking to invest in the region’s digital future.

The Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) have been at the forefront of the finance and virtual asset spaces’ regulatory innovation in the UAE, developing legislation and regulations that have made it one of the first jurisdictions in the world to implement a comprehensive legal framework for cryptocurrency businesses. This has encouraged a surge of interest from international players looking to get involved in this emerging market, as well as local startups aiming to capitalize on the growth.

The UAE’s commitment to digital finance and crypto has also been reflected in the government’s embrace of blockchain technology, launching numerous platforms designed to optimize civic and economic life. This innovative technology is designed to facilitate the exchange of data and documents between government departments, as well as streamline processes like payment transactions and document filing. 

The UAE’s Central Bank

As a global hub for digital finance, the UAE’s Anti-Money Laundering (AML) and Know Your Customer (KYC) measures are designed to promote trust within the industry. Licensed Financial Institutions (LFIs) must comply with the relevant laws that have been put in place by the country's overarching financial regulator, the Central Bank of the UAE (CBUAE), and the Securities and Commodities Authority (SCA).

The CBUAE has been instrumental in driving the Emirates’ pioneering digital transformation and shift towards a more digital-first environment — while ensuring that consumer safety and security are always top of mind. 

As we covered in this article earlier this year, in late May 2023 the CBUAE issued updated AML/KYC guidance for LFIs operating in the Emirates, including new clarifications on Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs). This has provided VASPs with clear rules on their legal obligations on operating in the Emirates, resulting in many businesses opting to base their operations there. 

As part of their efforts to be at the forefront of FinTech innovation, the CBUAE has also outlined a number of objectives to help the country become a global leader in digital finance and technology. This includes creating a platform that allows financial institutions to connect, collaborate and innovate; promoting innovation through partnerships between traditional and FinTech companies; encouraging research on emerging technologies; and ensuring consumer protection by implementing strong cyber security measures. The CBUAE has also established its own digital currency and set up a FinTech office to facilitate constructive collaboration with actors in the space. 

These initiatives are expected to create a more vibrant and competitive landscape in the UAE, with financial institutions of all sizes being able to take advantage of the benefits digital finance offers. The CBUAE is also committed to providing tailored support for FinTech companies as well as offering educational programs that will help both consumers and businesses understand the implications of their financial decisions. 

Who needs to comply with the UAE’s AML/KYC laws and regulations?

As the country’s overarching regulatory body, the CBUAE has defined which types of businesses need to be subject to AML/KYC rules by the Emirates’ various regulatory authorities.  

The CBUAE’s updated list of LFIs now include:

  1. Financial Institutions (FIs) — including any businesses that receive deposits and other funds; provide public, private or virtual banking services; currency exchange and money transfer services; payment processing and payment services; fund investment and management; securities issuance or related services; and engaging in other types of asset or fiat-based transactions, including derivatives, futures and options contracts, exchange rate and interest rate transactions or other financial instruments. 
  2. Designated non-financial businesses and professions (DNFBPs), just like FIs, conduct financial transactions on behalf of their customers. DNFBPs typically include brokers, real estate agents, precious metals businesses, as well as other professionals such as lawyers, notaries, independent accountants, and corporate/trust service providers.
  3. VASPs — such as crypto companies, exchanges, and any other legal or natural person facilitating the exchange or trade of virtual assets.
  4. Non-profit organizations — defined as any organized group of a continuing nature established for a temporary or permanent period, consisting of natural or legal persons or not-for-profit legal arrangements.

Regulatory Authorities

LFIs such as FIs, FinTechs, VASPs and other regulated businesses operating in the Emirates need to comply with rules set and enforced by the respective regulatory authorities of the of the financial centers where they are registered. 

For instance, FinTechs and other Virtual Asset Service Providers (VASPs) operating through the ADGM need to adhere to regulations set out by the ADGM Financial Services Regulatory Authority (FSRA). Those operating in the DIFC are regulated by the Dubai Financial Services Authority (DFSA) while VASPs operating in the Emirates outside of the ADGM and DIFC are regulated by the Dubai Virtual Asset Regulatory Authority (VARA)

These regulatory authorities provide a broad range of services to the industry from licensing and registration to dispute resolution. 

By providing a single point of access to digital finance information and resources, the Emirates’ regulatory authorities help businesses in the UAE stay informed about the latest regulations and best practices related to digital finance services. Through their platforms, VARA, DFSA and FSRA offer businesses support through guidance on everything from AML measures to cryptocurrency transactions and more.

The UAE’s regulatory authorities have taken a highly proactive and business-friendly approach to FinTechs and diverse players in the digital finance and crypto sectors. This includes transparent and well-formulated AML and KYC rules. 

AML and KYC Rules

The AML provisions in the UAE require LFIs and other regulated businesses to take certain steps to identify their customers, including conducting background checks and obtaining customer identification documents. In addition, LFIs must carry out ongoing monitoring of customer accounts for suspicious transactions.

Similarly, KYC regulations require LFIs to collect information about their clients, including their source of funds and risk profiles. This is to help ensure that customers are not engaging in criminal activities. FIs must also have adequate policies and procedures in place to verify customer identity and address potential risks associated with them.

FinTechs and VASPs must also meet the UAE’s KYC requirements, which include having strong customer authentication procedures and transaction monitoring systems. Furthermore, VASPs must have strong data security measures in place to protect customer information from unauthorized access.

Overall, the AML and KYC laws in the UAE are designed to promote trust within the digital finance industry by helping ensure that only legitimate customers are using financial services and that illegal activities are not taking place.

How KYC-Chain Can Help

Is your business regulated by the DFSA, FSRA, VARA or the CBUAE? Or are you in the process of considering whether to set up shop in the UAE? KYC-Chain’s end-to-end onboarding solution allows our clients to securely and efficiently carry out KYC checks in full compliance with the UAE’s various regulatory authorities, allowing them to securely take advantage of this world-class financial and digital innovation center. 

Get in touch and we’ll be happy to arrange a demo of how KYC-Chain can be your KYC/AML compliance solution. 

 

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