UAE Central Bank Regulatory Report: All payment providers are strictly prohibited from engaging in virtual currency transactions (Download the full report)

While the world waits for the People’s Bank of China (PBoC) to unveil its regulations on Bitcoin and digital currencies, another central bank has quietly put its own rules in place.

The Central Bank of the United Arab Emirates (UAE) released a new regulatory report earlier this month as part of its modernization drive to lay the foundations for a new digital payments ecosystem.

The regulation, published on January 1, applies to businesses that provide access to payment accounts, debit card services (including retailers and governments), remittances and peer-to-peer payments.

The report stipulates that companies providing the above services are "strictly prohibited from using all virtual currencies (and their derivative transactions)". The report points out that virtual currencies can be "any type of digital unit that is a medium of exchange, unit of account or means of store of value", but does not include loyalty points and other similar digital products.

The People's Bank of China recently interviewed representatives of several Bitcoin exchanges and sent a working group to check the operation of the exchanges. From this point, it can be seen that the policy of the UAE Central Bank is indeed not as direct as that of the People's Bank of China.

However, the UAE regulatory report clearly stipulates that domestic payment service providers (PSPs) are not allowed to process or conduct digital currency transactions. This is very similar to the regulations of the "Notice on Preventing Bitcoin Risks" issued by the People's Bank of China and five other ministries in 2013.

In addition, it is reported that the final right of interpretation of this regulatory report belongs to the central bank officials. In the UAE, central bank officials have a great say in the way money is transferred.

Simply put, the scope of impact of this regulatory report is not clear at this stage. We may have to wait until the central bank actually applies these regulations to corporate cases before we can have a further understanding of it.

Sally Sfeir-Tait, a partner at Clyde & Co, is concerned about regulatory issues in the UAE. She told CoinDesk:

At what level are the discussions at this stage? Is this regulatory measure to completely ban the use of virtual currencies? Or is this ban only effective in the areas of savings and electronic payments?

The development of blockchain technology in the UAE, both in the public and private sectors, has been gaining momentum since a few months ago.

Dubai's blockchain plan has attracted countless attention: the Crown Prince of Dubai announced that all government documents will be moved to the blockchain before 2020. These projects are essentially unrelated to financial transactions, so they are not within the scope of the UAE Central Bank.

As expected

For many people, there is nothing surprising about the central bank's move.

Raza Rizvi, legal counsel at Simmons & Simmons, said the central bank’s regulatory measures were “very consistent with the management style of the UAE region.”

Indeed, there are reports that the central bank introduced this policy because they would be particularly cautious once it comes to financial regulatory issues.

Rivzi said:

Although the government has realized the importance of the underlying technology of virtual currency and has shown a "digital awakening" attitude to a certain extent, they are still quite uncomfortable with this type of cryptocurrency that does not require central control.

Sfeir-Tait said the central bank’s move was an effort to defend its position as the UAE’s chief monetary manager.

The central bank's primary goal remains financial and monetary stability, and they believe that the introduction of this policy will help achieve this goal.

What should companies affected by this policy do?

Ola Doudin, CEO of Bitcoin exchange BitOasis, stressed that the regulatory measure "only applies to companies that hold the latest PSP licenses." In other words, startups like them will not be affected in any way.

Additionally, there are only a handful of startups operating in the region, with BitOasis likely the only one working in the Bitcoin blockchain space.

At present, the government has not yet introduced any regulatory measures for digital currency companies and exchanges.

He added:

We will fully cooperate with the government's reasonable regulatory measures. In addition, we will continue to work hard to promote the concepts of digital currency and blockchain in the UAE and establish unified industry standards.