The United Arab Emirates is approaching its 2021 deadline for migrating at least 50% of all government transactions onto distributed ledger technology-based platforms.
CryptoNewspeople spoke to Leon Smith, the CEO of Dex — an Abu Dhabi-based crypto firm that has been issued with an in-principle approval ahead of the country’s forthcoming regulatory framework for crypto asset trading — to discuss how blockchain technology is becoming embedded in daily life in the UAE.
UAE’s blockchain deadline looms
In 2018, the UAE launched the Emirate Blockchain Strategy 2021, outlining a plan to migrate at least 50% of government-related transactions onto DLT platforms before the end of this year.
When complete, the DLT overhaul is intended to save approximately $3 billion from reduced transaction and document processing, save 77 million work hours, and lower the number of printed documents by 398 million each year. Smith told CryptoNewspeople the Emirates Blockchain Strategy comprises a “country-wide approach to develop and integrate DLT technology to be embedded in our daily lives.”
Smith cited projects launched by Abu Dhabi Ports to use blockchain technology for logistics in 2018 and an initiative from the Dubai Land Department to use DLT to track land ownership, adding:
“In terms of digital transactions being embedded in your everyday life, a few examples would be Abu Dhabi Ports developing a blockchain framework for its logistical operations, and the Dubai Land Department developing blockchain solutions to record and register property ownership.”
During the recent Future Blockchain Summit conference, Sultan Butti Bin Mejren, the director-general of the DLD, described blockchain as “developing all the economic sectors and bringing forth a qualitative leap in the performance of government work, providing integrated services characterized by ease and convenience.” DLT-based pilot programs are also being implemented in the Dubai Chamber/DP World Silk Road project.
Abu Dhabi Islamic Bank executes DLT trade finance distribution
On April 15, Abu Dhabi Islamic Bank announced it had become the first Islamic financial institution to successfully complete finance distribution through blockchain technology. Using the DLT-powered trade finance marketplace TradeAssets, ADIB executed multiple cross-border transactions with banking partners over the course of 12 months. Haytham Elmaayergi, the global head of transaction banking at ADIB, said:
“ADIB is committed to expanding its digital footprint in trade financing and distribution, enhancing the efficiency and productivity of businesses across the region and globally.”
UAE expands blockchain regulations
The UAE has taken a methodical approach to the regulation of blockchain and crypto assets, with the Financial Services Regulatory Authority introducing guidance for initial coin offerings in 2017 — simultaneously establishing a foundation for the broader regulation of digital assets within the context of the country’s financial center, the Abu Dhabi Global Market.
In 2018, the UAE introduced a framework for operating a crypto asset business that has been further advancing toward a permissive regulatory apparatus. In March of this year, the FSRA updated its regulation to align with the terminology used by the Financial Action Task Force — the intergovernmental Anti-Money Laundering agency of the G-7.
UAE introduces stablecoin guidance
The new guidelines changed the previous terminology of “crypto asset” to “virtual asset,” further clarified custody and governance requirements, and introduced regulatory concepts concerning stablecoins.
The FRSA claims to have been the world’s first regulator to categorize virtual asset trading under operating a multilateral trading facility — mandating market surveillance, settlement, as well as transaction monitoring obligations, and paving the way for institutions to become active in the space.
Only MTF licensees will be permitted to deal in fiat tokens, and any supported stablecoins must be able to demonstrate that they are fully backed on a one-to-one basis by their underlying fiat currency. They will also need to obtain permission for the financial activity of providing money services.
UAE embraces security tokens
The updated guidelines also abandoned the term “security token” in favor of “digital securities”. Securities issued via blockchain technology will be treated the same as securities issued through traditional means. Smith stated that the framework “represents a progressive approach to the regulation of digital securities and virtual assets, providing a leading position for the ADGM as a global hub for regulated digital assets.” He went on to add:
“As an International Financial Centre, the FSRA has actively developed a leading global position for virtual assets, digital securities and derivatives. The comprehensive digital asset framework that has been developed presents a contemporary approach to the regulation of digital assets backed onto traditional market infrastructure rules, regulations, and a transparent legal system allowing for engagement with the global economy as an established International Financial Centre.”
However, despite the advancement of a permissive regulatory apparatus with regards to blockchain technology and digital asset trading, the UAE has not yet introduced legislation that recognizes crypto assets as a means of payment.
National regulators contribute to the global blockchain ecosystem
On the topic of shifting regulatory trends regarding DLT regulation worldwide, Smith asserted that the varying national legislative frameworks are contributing to a diverse global blockchain ecosystem.
Smith noted that jurisdictions, such as Japan, “have taken a proactive legislative approach, developing a framework whereby Bitcoin and potentially other crypto or virtual assets may be used as legal tender that can be used as a form of currency to procure your goods.”
He also notes the successes of the Swiss Financial Market Supervisory Authority in “taking a congruent approach to identifying digital assets as a unique asset class.” But, while different jurisdictions have been emphasizing different applications for blockchain technology, Smith pointed to the emergence of a global foundation to a comprehensive legislative apparatus for blockchain: “When juxtaposed against jurisdictions that have also taken a proactive approach, […] you start to see a global digital asset ecosystem being built.”
Coronavirus pandemic drives crypto asset adoption
Smith believes that the blockchain and crypto industries may produce growth during the international coronavirus lock-down, as “alternative investment products such as digital securities” may provide a flexible financial instrument, further adding that digital assets have been “quite resilient in terms of business continuity,” given the current economic circumstances:
“If you observe the volumes and or trading activities both in the crypto and virtual asset markets, as well as traditional equity, securities and commodities in the capital markets, the volumes are at an all-time high, and I’ve been told that in terms of on-boarding both to digital assets as well as traditional capital markets and trading platforms, that there is significant increase demand.”