Karm Legal’s Kokila Alagh on advancements in virtual assets regulation

Can you shed light on how the virtual assets regulatory framework has advanced over the past three years? How does this benefit investors in UAE and Bahrain specifically given that these are the two core markets in the region for the sector?

Over the last few years, regulators in the region (such as the FSRA) have expanded the scope of their regulations to cover different token categories. This process is moving fast.

To highlight just one example, Dubai’s Virtual Assets Regulatory Authority (VARA), the world’s first dedicated virtual assets regulator has launched operations over the last one year.

VARA has come out with detailed regulations and rulebooks for the virtual assets sector, indicating just how fast things are moving. Essentially, we are seeing increasing clarity on regulated entities and regulated activities.

From an investor’s perspective, these regulators and regulations keep investor protection at the core of their approach while ensuring that technological innovation is not hampered.

Regulatory clarity with regard to such a new age development ensures that investors are afforded sufficient protection. It also enables the businesses operating in this sector to adopt international best practices and appropriate risk mitigation measures.

Is this region on par with global frameworks or do you see it advancing faster than any other part of the world?

UAE and Bahrain are among the frontrunners when it comes to digital assets regulation. ADGM was one of the first jurisdictions globally to come out with comprehensive regulations pertaining to virtual assets and digital securities. Other international jurisdictions have started to come out with their own regulations.

For example, the European Parliament is soon set to vote on the Markets in crypto-assets regulation, which would establish harmonised rules for crypto-assets at the EU level. It would be fair to say that the regulatory framework in the UAE has evolved at a rapid rate and has outpaced other jurisdictions in this regard.

Are regulators globally trying to come together to create international best practices in the sector?

At present, some international organisations have taken steps to create international best practices in the sector.

For example, the Financial Action Task Force (FATF), has issued guidance on how member countries should regulate virtual assets and virtual asset service providers. Similarly, the International Organization of Securities Commissions (IOSCO), an international organization of securities regulators, has issued guidance on initial coin offerings (ICOs) and virtual currencies.

There appears to be a general consensus on creating international best practices in the sector.

However, a consultative mechanism bringing together regulators from across jurisdictions and sectors would be a welcome step to ensure that international best practices evolve in a comprehensive manner, rather than as a patchwork of guidance documents.

The UAE has four regulators (ADGM, DFSA, SCA, VARA) and Bahrain too is navigating the space successfully. What is your role as Karm Legal in this entire virtual assets ecosystem?

At Karm Legal, we specialise in advisory and licencing services for emerging technologies. We have advised various platforms, crypto exchanges, payment service providers, in addition to central banks, regulators and policy makers in the region.

There are multiple crypto and blockchain companies looking to set up in the region – why is that happening vs. entering other parts of the world where frameworks are also well in place? Is it because of the robust regulations that the region has to offer?

Regulatory clarity is always beneficial for businesses as they have a clear idea of what licencing and prudential requirements will be applicable to them. This allows them to forecast costs, timelines and mitigate the legal risk of facing enforcement actions due to unclear requirements.

The licences procured from VARA, FSRA, CBB and DFSA are considered to be reputable and provides businesses with a level of unparalleled credibility. This is a strong driver behind crypto and blockchain companies looking to set up in this region.

There is still a lot of unclarity for investors perhaps with multiple regulations and regulatory bodies. Does that complicate matters for investors? Is there a need for more knowledge and education in the field?

Multiple regulations and regulatory bodies can appear intimidating to investors as well as businesses. However, as the environment evolves and the domains of the various regulators are more clearly circumscribed, more clarity is bound to emerge for both investors and businesses. There is certainly a need for more knowledge and education in the field, and this is where outreach efforts by regulators as well as public engagement by us and other entities will play a big role.

Is there sufficient talent in UAE and Bahrain to deal with the spike in the field?

The UAE and Bahrain have led the field in the virtual assets space because of the technically qualified and legally trained human resources available here. Further, being open and welcoming societies, as well as active and vibrant economies, this is an attractive region for the best global talent. As opportunities continue to grow, so will the pool of available talent.

Kokila Alagh is the founder at Karm Legal Consultants

Read: How UAE is fast becoming an ideal hotspot for blockchain startups