UAE Regulations on Asset Tokenization

The popularity of tokenized assets is increasing rapidly across the world. It is basically the digitalization of real assets such as bonds, stocks, a barrel of oil, an apartment, etc. The digitalized assets are stored in a blockchain network. They can be traded and transferred between parties by paying fiat currencies or cryptocurrencies, depending on the smart contracts terms. UAE government sits among the first governments who have taken a proactive approach to regulate asset tokenization and pave the way for such an emerging market.

If you are one of those who are interested in investing in tokenized assets, you must be fully aware of what to consider when buying tokenized assets in the UAE. 

Emirates Securities and Commodities Authority (SCA) is at the frontline of the regulatory landscape for tokenized assets. SCA in general governs, supervises and regulates the security and commodity markets in the UAE. SCA has so far issued several guidance documents. They pretty much about how to classify the security tokens, issue such tokens and trade them within the UAE territory. 

Under current regulations issued by Securities and Commodities Authority, tokenized tangible assets must follow the same regulations which are already in place for securities. As such, the process of tokenizing assets, distributing the issued tokens and trading them in the blockchain network is subject to compliance with the securities and commodities regulations. 

Dubai official government entity to regulate Asset Tokenization

Dubai is also following the UAE government’s proactive approach in order to make Dubai one of the first cities to regulate asset tokenization across the globe. Dubai government established Virtual Asset Regulatory Authority (VARA) back in March 2022, to specifically work on such an emerging sector. VARA as described in their website, is aiming to position Dubai as the regional and international hub of virtual assets.

VARA is responsible for developing the regulation framework for virtual assets.  VARA not only protects and safeguard investors, but also prohibit illegal activities within the sector. VARA takes close care of all virtual assets activities such as token issuance, asset tokenization, ownership and a lot more for the sake of providing a secure and legal environment for such an emerging industry. The regulatory authority (VARA) works closely with UAE central bank and SCA to be in line with national regulations and legislation. 

Major Regulations in UAE in terms of Asset Tokenization

• KYC or Know Your Customer

All parties who are working in the blockchain industry and provide facilities for their customers to trade tokenized assets must fully identify their customers. In other words, users must be identified by legal documents before becoming capable of doing any trade or action.

• AML or Anti-Money Laundering requirements 

To prevent illegal actions, all activities in terms of asset tokenization, including token issuance, distribution and trading must be in compliance with Anti-Money Laundering and terrorist financing regulations. These are very important requirements for the sake of safeguarding investors from illegal activities.

• Privacy and Data Protection Regulations

Users’ privacy and data protection is one of the most important elements in our digital world. It is mandatory for entities who issue and distribute asset backed tokens to operate in full compliance with data privacy regulations such GDPR( General Data Protection Regulation).

There are still other regulations to understand. If you are planning to invest in the blockchain industry and tokenized assets ensure to be aware of the whole regulations. However, as a rule of thumb, make sure that the token that you are investing in across Dubai, has obtained VARA approvals and certificates.

Conclusion

Asset tokenization is evolving and emerging. Blockchain technology is changing the game for lots of industries and in particular for the real estate sector. If you are a small scale investor and interested to invest in Dubai real estate, make sure to understand how blockchain is affecting the Dubai real estate market and act promptly with care though!

There are quite a few general rules and essentials that we have gone though in this article for you, if you are planning to invest in tokenized assets in the UAE.

VARA as the official governmental entity must be your reference in case of making any investment decision. Follow the rules and take care of your investment. Good luck!