Recent Legal Developments in the UAE for Blockchain and Web3 in Fintech

The UAE has long positioned itself as a global leader in fintech innovation, particularly in the realms of blockchain and Web3. With a progressive regulatory approach and strong government support, the country continues to attract businesses looking to leverage decentralized technologies in financial services. Recent legal developments have further strengthened this ecosystem, providing clarity for fintech companies and ensuring compliance while fostering innovation.

Regulatory Landscape: Key Developments

VARA’s Expanding Role in Regulating Virtual Assets

The Virtual Asset Regulatory Authority (VARA), established in Dubai in 2022, has been instrumental in shaping the legal framework for blockchain-based financial services. In 2023 and early 2024, VARA introduced detailed regulations covering licensing, anti-money laundering (AML) compliance and consumer protection for virtual asset service providers (VASPs). These regulations provide a structured approach to operating blockchain-powered financial solutions while mitigating risks related to money laundering and fraud.

For instance, VARA’s comprehensive licensing framework mandates that entities engaging in crypto trading, custody, and decentralised finance (DeFi) services meet stringent compliance requirements, including proof of financial stability and robust cybersecurity measures. This ensures a safer and more transparent fintech ecosystem in Dubai.

ADGM and DIFC Frameworks for Blockchain and Fintech

The Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) have also made significant strides in regulating fintech activities. ADGM’s Financial Services Regulatory Authority (FSRA) has issued clear guidance on digital assets, enabling tokenised securities and blockchain-based financial products to operate within a structured legal framework. Similarly, DIFC’s innovation-friendly approach has encouraged startups to pilot Web3 solutions, particularly in digital payments and decentralised finance.

Both financial hubs now offer specialised fintech licenses catering to blockchain firms, providing regulatory certainty while allowing flexibility for innovation.

Federal Virtual Asset and Blockchain Regulations

At the federal level, the UAE Securities and Commodities Authority (SCA) has expanded its oversight of crypto assets, ensuring compliance with international financial regulations. The UAE Central Bank, in collaboration with other regulatory bodies, has also issued guidance on the use of blockchain in payments and digital banking, underscoring the country’s commitment to embracing Web3 technologies responsibly.

Case Study: Assisting a Blockchain Fintech Firm with Corporate Structuring

Background

A global fintech company approached us seeking to establish operations in Dubai to leverage its favourable blockchain regulations. The company specialised in providing DeFi solutions, enabling cross-border payments and tokenised asset trading through smart contracts. However, they faced challenges navigating the regulatory landscape, particularly in obtaining the necessary licenses and structuring their corporate entity for compliance and scalability.

Legal Strategy and Assistance

1. Regulatory Compliance Assessment – Our first step was conducting a comprehensive regulatory assessment to determine whether their business model aligned best under VARA, DIFC or ADGM guidelines. Given their focus on DeFi and tokenised assets, we advised them to seek a VARA license while also obtaining a dual presence in the ADGM for strategic partnerships with institutional investors.
2. Corporate Structuring – To optimise their corporate setup, we recommended a hybrid structure, incorporating a free zone entity for financial services compliance and an offshore entity for intellectual property (IP) holding. This approach ensured regulatory compliance while optimising efficiency and operational flexibility.
3. Smart Contract Legality Review – Given the evolving nature of smart contract regulations, we conducted a thorough review of their automated financial transactions to ensure they complied with UAE contract law and financial regulations.
4. AML and KYC Compliance Framework – To meet VARA’s AML and Know Your Customer (KYC) requirements, we developed a robust compliance framework, incorporating blockchain analytics tools to detect suspicious transactions and ensure adherence to UAE financial regulations.

Outcome

By structuring their legal and corporate framework in alignment with UAE regulations, our client successfully obtained their VARA license and launched operations within six months. Their regulatory compliance also enabled them to secure strategic partnerships with local banks and financial institutions, positioning them as a leading player in the UAE’s DeFi sector.

Conclusion

The UAE continues to solidify its position as a global leader in blockchain and Web3 fintech innovation through proactive regulatory developments. Legal practitioners advising fintech businesses must remain agile, staying ahead of evolving laws to provide strategic counsel. With regulatory clarity improving, the UAE presents unparalleled opportunities for fintech firms seeking to harness blockchain technology within a structured legal framework.

Raymond Kisswany

Partner – Head of International Trade, Digital Assets & Start-Ups

Davidson & Co. Law Firm

Dubai, UAE

Tel: +971 50 354 2217