The United Arab Emirates (UAE) has recently unveiled comprehensive regulatory guidance aimed at addressing the risks associated with unlicensed virtual asset service providers. This move highlights the UAE’s commitment to safeguard the integrity of its financial system and tackle illicit activities, such as money laundering, terrorist financing, and the financing of illegal organizations. Under Federal Law No. (20) of the 2018 Decree on Combating the Financing of Terrorism (CFT), Illegal Organizations, and Anti-Money Laundering (AML), the UAE’s regulatory framework has been reinforced.

The new guidance, issued by the UAE and the National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee (NAMLCFTC), aligns with global regulatory guidelines set forth by the Financial Action Task Force (FATF). It seeks to educate licensed financial institutions (LFIs) and the broader public sector about the potential risks associated with unlicensed virtual asset service providers.

Mohamed Balama, Governor of the Central Bank of UAE, emphasized that the release of this guidance is particularly crucial given the increasing accessibility of virtual assets through digital channels. He stated, “The new guidance on combating the use of unlicensed virtual asset service providers comes at a time when virtual assets become more accessible through digital channels.”

According to the guide, financial service providers in the UAE are now required to diligently manage risks associated with digital assets and follow a systematic approach. The guide emphasizes the need for these institutions to be vigilant and report any transactions believed to be connected with the evasion of sanctions. This proactively addresses the activities of unregistered digital asset providers within the UAE.

Registered digital asset entities and designated non-financial businesses and professions (DNFBPs) are also subject to the guide’s provisions, including compliance with the FATF’s guidelines on Red Flag indicators of money laundering and terrorist financing. By adhering to the outlined processes and enhancing their governance and operational processes, these entities can strengthen their ability to combat financial crimes.

To ensure compliance, the guide underpins its recommendations with penalties. Crypto service providers who fail to abide by the regulatory framework may face civil and criminal penalties. Additionally, financial entities operating with inadequate licensing documentation will be subject to enforcement actions. These penalties aim to discourage the operation of unlicensed virtual asset service providers, weak AML/CFT practices, and counter-proliferation financing controls.

The UAE’s newly released guidance serves as a comprehensive roadmap for licensed financial institutions, designated non-financial businesses and professions, and registered virtual asset service providers. The strengthened regulations underscore the UAE’s commitment to combat money laundering, terrorist financing, and the proliferation of illegal activities within its financial system. By adopting these guidelines, UAE entities can bolster their governance and operational processes, furthering the UAE’s reputation as a secure and compliant financial hub.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.