The UAE issues new AML/CFT guidance for VASPs

On May 31, 2023, the The Central Bank of the UAE (CBUAE) released new Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) guidance for Licensed Financial Institutions (LFIs) operating in the country. 

LFIs in the UAE include banks, finance companies, exchanges, payment service providers (PSPs), registered hawala providers (RHPs) and insurance companies, agents and brokers. Of note, the new guidance provides greater clarity and transparency for how LFIs should interact with Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs) and other actors in the broader cryptocurrency sector. 

VASPs in the UAE

VASPs in the UAE are regulated in different degrees and dimensions by various regulatory authorities in the country. These include the UAE Securities and Commodities Authority (SCA), which operates as the licensing and main regulatory authority for VASPs at the Federal level and for the UAE’s Commercial Free Zones (CFZs); the Virtual Asset Regulatory Authority (VARA), which regulates VASPs in the Emirate of Dubai; the Financial Services Regulatory Authority (FSRA), which regulates VASPs in the Abu Dhabi Global Market (ADGM); the Dubai Financial Services Authority (DFSA) which regulates VASPs in the Dubai International Financial Centre (DIFC) and the CBUAE, which supervises LFIs and RHPs, including in their interactions with VASPs and provision of services to non-VASP customers that may engage in VA transactions.  

VASPs have been increasingly drawn to the UAE for numerous reasons, including its status as global financial and economic centers with cutting edge technological infrastructure, preferential tax regimes and forward-thinking regulatory environments. 

The UAE has been actively supporting VASPs through the issuance of comprehensive regulations that have helped create a secure and transparent environment for VASPs to operate. The UAE government has simplified the process of setting up VASP operations in the country, offering generous tax exemptions and legal protections. 

The country is also home to one of the world’s best financial infrastructure networks, making it an ideal platform for VASPs seeking access to deep liquidity pools, low transaction fees, and fast settlement times. All of these factors make Dubai and Abu Dhabi attractive destinations for VASPs looking to expand their business on a global scale.

The Guidance

The new guidance covers various aspects of VA service provision such as Know Your Customer (KYC) registration requirements, capital adequacy, fraud prevention measures, customer due diligence and reporting obligations. It is designed to ensure that LFIs that provide services to VASPs and customers who engage with VAs are compliant with AML regulations, have adequate policies and procedures in place to protect customers, maintain proper records and submit financial reports regularly. 

VASPs must also register with the UAE Central Bank before commencing operations. The registration process requires entities to provide detailed information about their business activities, including details of their personnel and external consultants they plan to employ. VASPs will also be subject to ongoing supervision by the Central Bank, which includes regular monitoring of their operations and compliance with applicable laws and regulations. 

Key takeaways of the new guidance includes: 

• Clear definitions of VASPs and VAs
• Clear definitions of what types of transfers or activities result in being defined as a VASP
• Detailed outlines of the AML/CFT risks and vulnerabilities faced and presented by VASPs and VAs
• LFIs’ potential exposure to AML/CFT risks through doing business with VASPs/VAs
• Explanation of the various UAE regulatory authorities’ responsibilities regarding VASPs and VAs
• The CBUAE’s requirements for opening accounts for VASPs
• How to mitigate AML/Terrorist financing risks related to VASP Customers and VA-related customer transactions
• The importance of Customer Due Diligence, Ongoing transaction monitoring and a risk-based approach to AML compliance

You can read the full new guidance here. 

How KYC-Chain can help

Is your LFI or VASP regulated or looking to do business in the UAE? KYC-Chain’s end-to-end onboarding workflow solution allows our clients to securely and efficiently carry out the necessary KYC checks to comply with all of the UAE’s evolving AML/CFT and KYC rules and regulations — get in touch and we’ll be happy to show you how KYC-Chain can be your KYC onboarding solution.