Dubai regulator halts unapproved crypto sale

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Dubai’s Virtual Assets Regulatory Authority has halted the sale of Islamic Coin (ISLM), a crypto token touting its adherence to sharia and ethical principles.

The intervention demonstrates the emirate’s balance of innovation and regulatory oversight, say legal insiders.

In a market alert, Virtual Assets Regulatory Authority (Vara) highlighted that Bored Gen DMCC, the fintech software outsourcing company behind Islamic Coin, lacks proper licensing from the authority for virtual asset issuance and distribution. 

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A digital coin is a virtual form of currency or crypto asset that operates on a specific blockchain.

Coins (or tokens) can be used to store value and act as a means of exchange between two parties.

The regulator underscored that promoting unauthorised digital tokens breaches local rules, and is actively investigating potential breaches.

Vara’s sounding of the alarm is a clear demonstration the regulator “is taking its supervision role seriously,” said Nadim Bardawil, partner at law firm BSA.

Unauthorised issuances can “increase market volatility” because they create confusion among investors, he said.

“It is not uncommon though for a relatively new industry to face such unauthorised or unsanctioned activities,” he added.

Proactive approach

A proactive approach to protect investors not only increases public confidence in the digital asset space but also reflects Dubai’s maturing regulatory landscape, he said.

Regulatory actions against unauthorised activities “are on the rise”, as is action taken against those operating without a licence, or involved in unauthorised issuances, marketing and promotional activities, Kokila Alagh, founder of Karm Legal Consultants, said.

“In the past, there have been instances where improper virtual asset issuances have adversely affected market sentiment,” she added. 

“In the absence of regulatory protections, several investors were left with no recourse.”

She noted that the UAE now has rules addressing aspects such as anti-money laundering and know your customer, investor safety and technology security.

“There will always remain certain activities that cannot be fully regulated as they are occurring outside of the jurisdiction of a particular regulator,” Bardawil added. 

“It remains paramount for stakeholders in each jurisdiction, including Dubai and the UAE, to educate the public on the crypto space and how to measure the validity and risk factors of a particular investment.”

Entry barriers

He noted that regulators often heighten barriers to entry for companies operating in the virtual asset space to ensure project legitimacy, expertise and funding, in compliance with local and international regulations.

Alagh points out that there is no single regulatory approach on virtual assets issuance globally.

Typically, financial authorities in different jurisdictions oversee issuances, often mandating detailed disclosure of token economics in whitepapers.

“The unique thing about Vara is that it offers tailor-made legal regime for virtual assets issuance,” she said. 

Vara’s rulebook not only defines various types of virtual assets but also outlines business conduct principles, whitepaper disclosure requirements, and ongoing post-issuance compliance obligations, she said.

Samuel Moore, a paralegal at BSA, warned investors must assess genuine market demand, understand a project’s objectives, and scrutinise the track record of the team. 

He highlighted the need to verify compliance with regulatory approvals.

“Potential investors must always do their own research and keep in mind that they should not invest any funds they are not prepared to lose,” he said.

Islamic Coin said in a July press statement it had “shattered records” by securing $200 million in funding, taking its total financing to $400 million.

This meant it beat Circle, BlockFi and Solana to become one of the largest ever fundraising in the history of the crypto space.

Islamic Coin said in a statement in August that it had signed four significant memoranda of understanding with leading private and government-affiliated services in the UAE.

A disclaimer has since been posted on Islamic Coin’s website stating that its token, whitepaper or any other materials have not been approved by Vara, or other regulatory authorities.

It said the Islamic Coin token is not currently available for purchase to Dubai residents.

Bored Gen DMCC is based in Dubai Multi Commodities Centre, which claims to be the largest ecosystem of crypto and blockchain companies in the region.

Crypto hub

According the free zone’s website, a crypto licence costs AED35,000 and takes four weeks to obtain, but varies depending on the business.

The UAE has been forthcoming in welcoming cryptocurrencies into the mainstream, promoting itself as a crypto hub.

The Abu Dhabi Global Market in 2018 set up the world’s first regulatory framework for crypto. 

Recently, Dubai International Financial Centre has proposed a new law to regulate digital assets. They represent a trillion-dollar industry.

The value of the global crypto market surged to roughly $2 trillion in 2021 from $100 billion three years earlier, according to CoinMarketCap. However, it crashed to less than $800 billion in 2022.

Vara said investors and those who have been targeted by BG should notify the regulator via email at varaconnect@vara.ae.