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The United Arab Emirates demonstrated its commitment to innovation in the financial sector last week when it undertook the first cross-border transfer of its central bank’s digital currency (CBDC), the digital dirham.
On January 29, the President of the Central Bank of the UAE sent 50 million digital dirhams – the equivalent of approximately $13 million – from the UAE to China via mBridgea platform that allows countries and financial institutions to experiment with the use of CBDCs for cross-border wholesale payments.
The transfer is part of the UAE’s efforts to develop a CBDC that can initiate the digital transformation of the country, and is the first in a series of pilot programs that the UAE intends to launch with CBDCs, with future projects focusing on establishing CBDC bridges with India, and a proof of concept for the use of CBDCs in domestic retail and wholesale payments. These efforts together form part of the UAE CBDC strategyas announced by the Central Bank in March 2023.
The UAE’s pioneering work on CBDCs is just one component of the country’s drive to pioneer innovation in the financial sector. The UAE has also made clear its intention to serve as a hub for development a well-regulated blockchain and crypto sector as another component of digital transformation. As we noted earlier, last year the Dubai Virtual Asset Regulatory Authority (VARA), the world’s first crypto-specific regulatory body, presented a comprehensive and robust framework for Virtual Asset Service Providers (VASP) wants to do business from Dubai.
In addition, the carefully designed and comprehensive regulatory regimes established by the Dubai Financial Services Authority (DFSA) and nearby supervisors Abu Dhabi and Ras Al Khaimah, these developments are helping the UAE build a reputation as a leader in digital asset innovation. Indeed, crypto firms and financial institutions looking to innovate in the space, such as Standard Chartered Bankthey are increasingly looking to the UAE as a base from which to operate.
As stated in our recent Regulatory outlook for 2024we think the UAE will continue to cement its status as a global and regional hub for well-regulated crypto innovation this year – and its recent experiments with the digital dirham are testament to its ambitions.
For more on cryptocurrency development in the UAE, take a look Elliptic blog.
Hong Kong to consider regulation of OTC crypto brokers as exchanges face registration warning
In the Asia-Pacific region, policymakers in Hong Kong are considering how to deal with unlicensed crypto brokers (OTCs) amid a regulatory deadline for exchange registrations.
On February 2, Hong Kong’s Financial Services and Treasury Bureau (FSTB) announced that it will soon launch a consultation on how to bring OTC crypto brokers under Hong Kong’s cryptocurrency regulatory framework.
FSTB’s announcement comes just three days before Hong Kong’s Securities and Futures Commission (SFC) issued a reminder on February 5 that virtual asset trading platforms (VATPs) must apply for a license to the SFC by February 29 or they must close their doors by May 31 this year. The SFC, which administers Hong Kong’s licensing regime for VATPs, has repeatedly warned the public against trading on unlicensed crypto platforms, and called exchanges which he suspects are falsely claiming to have an SFC license to mislead investors.
A statement from the FSTB on February 2 said that OTC brokers in Hong Kong appear to have played a role in some cases in enabling investors to use unlicensed exchanges – leading to the need for OTC brokers to also be included in Hong Kong’s regulatory framework.
As stated in our Regulatory outlook for 2024, we think Hong Kong will continue to stand out as a hub for crypto innovation in the APAC region this year thanks to these efforts to establish a strong regulatory framework. In addition to the Hong Kong Monetary Authority (HKMA) plans to regulate stablecoin issuersefforts by the FTSB and the SFC to ensure effective oversight of crypto trading platforms can facilitate innovation in the crypto space – including for retail purposes – while helping to protect consumers.
To learn more about Hong Kong’s evolving regulatory framework for cryptocurrencies, see our webinar on demand with SFC Licensing Director and Head of Fintech, Elizabeth Wong.
China to improve AML rules for cryptocurrencies
In mainland China, financial sector authorities plan to introduce anti-money laundering (AML) measures for cryptocurrencies as evidence emerges that their ban on cryptocurrencies has failed to prevent illicit financing involving the technology.
According to reportsChina will include provisions to regulate crypto activities to combat money laundering as part of legislative changes to the country’s anti-money laundering laws that will become law in 2025. The plans come after a recent United Nations report which indicates that cryptoassets, and especially stablecoins, are playing an increasingly important role in money laundering in China. The US government is too used financial sanctions target Chinese facilitators of North Korea’s cryptocurrency activities.
In 2021, China famously banned crypto trading entirely – but reports of money laundering taking place through underground brokers in China suggest that the ban only pushed cryptocurrencies into less transparent channels.
South Korea wants to bring accountability to crypto firms
In other news from the APAC region, on February 5, South Korea’s Financial Services Commission (FSC) announced plans to improve oversight of crypto firms operating in the country.
Specifically, the FSC has proposed changes to South Korea’s cryptocurrency legislation that – if enacted – will require executives of regulated crypto exchanges to be approved by the FSC before being appointed. The enhanced authorities will also give the FSC the ability to suspend a company’s license if its executive members are under investigation. If approved, the changes will take effect from March this year.
The planned moves follow cases last year in which managers from crypto exchanges have been accused of criminal activity and in the midst of decline the collapse of stablecoin Terra USTwhose founder Do Kwon is currently arrested in Montenegro and awaiting extradition.
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