SCA Guidelines for Regulation of VAs and VASPs

The Securities and Commodities Authority (SCA) in UAE has issued the Guidelines for Regulation of Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs) operating in UAE.

Along with other requirements, the guideline provides an overview of Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations. It also recognises the need to have effective and balanced legislation in place to govern the field of digital assets, built on the bedrock of the “Risk-Based Approach” (RBA).

The guideline gives due consideration to the Money Laundering (ML), Financing of Terrorism (FT), and Proliferation Financing  (PF) risks associated with VAs, addressed by the Financial Action Task Force (FATF) addressing the risks emerging from new technologies, namely:

• Virtual Assets and Privacy
• Cross-border risks
• Infrastructure complexity
• Weak internal Controls
• Market Manipulation
• Vulnerability to cyber-attacks
• Technological challenges

The FATF requires countries to implement measures to fulfil its Recommendation No. 10, which calls for applying enhanced due diligence (EDD) measures to high-value and VA transactions. VASPs are required to adopt EDD measures whenever a VA transaction exceeds USD $1000 or AED 3,500; examples of such EDD measures include:

• Measures to determine the identity of clients
• Measures to identify the nature of transactions
• Measures to collect and understand the Sources of Funds and Sources of Wealth concerning the parties to VA transaction
• Measures to ascertain the true purpose of VA transaction.

The FATF also requires countries where VAs and VASPs operate to impose and implement ‘Travel Rule’, based on FATF Recommendation No. 16. Travel rule implementation requires the collection of the basic information concerning any VA transaction, such as originator and beneficiary details, which aids with transparency and traceability of VA transactions, mitigating ML/FT and PF risks.

The SCA, to complement and fulfil the FATF recommendations governing VAs and VASPs, commits to full compliance with the UAE’s regulatory AML/CFT framework and TFS framework, which includes:

• Federal Decree-Law No. (20) of 2018 on Combating Money Laundering Crimes, the Financing of Terrorism, and the Financing of Unlawful Organisations.
• Cabinet Decision No. (10) of 2019 On the Implementing Regulation of Federal Decree-Law No. (20) of 2018 on the Criminalization of Money Laundering and Combating the Financing of Terrorism and the Financing of Unlawful Organisations.
• Cabinet Decision No. (74) of 2020 Concerning the UAE List of Terrorists and the Implementation of UN Security Council Decisions Relating to Preventing and Countering Financing Terrorism and Leveraging Non-Proliferation of Weapons of Mass Destruction, and the Relevant Resolutions.
• Cabinet Decision No (109) of 2023 On Regulating the Beneficial Owner Procedures.
• Cabinet Resolution No. (111) of 2022 Concerning the Regulation of Virtual Assets and their Service Providers.
• Module 5 of the Rulebook for Financial Activities: Controls on Anti-Money Laundering crimes and combating the financing of terrorism and the financing of illegal organisations.
• The joint guide issued by the UAE Supervisor Authorities regarding the countering of money laundering crimes and combating the financing of terrorism for financial institutions.
• Guidance on Targeted Financial Sanctions for Financial Institutions, Designated Non-Financial Businesses and Professions and Virtual Asset Service Providers.

The SCA also prescribes to the VASPs to adopt international best practices within its internal framework to combat ML/FT and PF risks effectively by considering the basic principles such as:

• Responsibilities
• Risk Based Approach
• Business Risk Assessment
• Client Risk Assessment and Client Due Diligence
• Governance, Systems and Controls
• Obligations to Report Suspicious Activities
• Sanctions Compliance – UAE Local Terrorist List and UNSC Consolidated List
• Appropriate Training
• Record Keeping