EU Legislation Fallout Fuels Demand For Crypto Business Expansions To UAE, Advisory Firms Reveal

Digital asset exchanges, NFT marketplaces, utility token issuers, tokenised funds and payments companies are among the ventures seeking to relocate or expand operations to the UAE.

The development is also prompting accelerators and venture funds in the region to get into overdrive to partner with these companies to facilitate their growth plans in the UAE and the wider region.

“A number of European digital asset businesses have approached us with a view to expanding their operations in the UAE and the Middle East,” Anna Zeitlin, Partner in fintech and financial services, Addleshaw Goddard, a global law firm with a regional headquarters in Dubai, told Arabian Business.

“The kinds of businesses we’re seeing are from sectors like digital asset exchanges, NFT marketplaces, utility token issuers, tokenised funds and payments,” said the Partner at Addleshaw Goddard, which provides legal services to companies across many industries.

Zeitlin said the “stable, transparent and commercially-minded” regulatory regime offered by the UAE is what is attracting significant numbers of EU-based digital asset businesses to set up operations here.

Sector experts said the move on shifting or business expansion into the UAE is because the new European Union (EU) regulation – Markets in Crypto-Assets (MiCA) regulation – approved by European parliamentarians in April last year and came into full force from December 30, is widely perceived to hit the financial viabilities of crypto exchanges and stablecoin companies.

Dubai, Abu Dhabi to benefit the most

Industry experts said the EU firms are mainly looking at Dubai or Abu Dhabi to base their operations. The government-aided incentives and concessions for new companies setting up operations in the two emirates are cited as the reasons for this decision.

The Abu Dhabi Investment Office, for instance, offers certain financial incentive schemes for new companies that wish to set up operations in the capital city. These vary in what they offer and are tailored to the companies themselves.

In Dubai, there are a slew of public and private accelerators and incubator programmes, such as the Fintech Hive in the DIFC and Wamda, a sector-agnostic accelerator funded by Wamda Capital, which aim to attract financial technology start-ups by offering a low-cost entrance to the market.

The Addleshaw Goddard Partner said besides the financial incentives, further industry-friendly regulatory moves anticipated to be announced by the UAE authorities are also playing an important role in attracting new crypto sector ventures into the country.

“From a regulatory perspective, there are lots of developments in the pipeline being championed by the various UAE financial regulators,” she said.

Rush for UAE expansion expected to see further rise

Industry insiders said the rush by European businesses in the crypto sector to move or expand to the UAE is expected to grow further in the coming months in the face of growing realisation by firms on the financial implications of the new EU legislation.

The stipulations that small stablecoins issuers must keep 30 per cent of their reserves in a low-risk commercial bank within the EU, while bigger players like Tether must keep 60 per cent or more in banks are among the conditions cited in the new EU legislation which will have major impact for the operational viabilities of firms operating in the sector.

The EU regulation also introduces a pan-European licensing and supervisory regime for issuers of crypto-assets, crypto platforms and crypto-asset service providers (CASPs) across a broad range of crypto-assets.

Uldis Teraudkalns, Chief Revenue Officer at Paybis, a leading globally operating cryptocurrency exchange platform, earlier told Arabian Business that the new EU regulations will definitely drive smaller – and even some larger firms – out of the EU, as they require not only compliance but also a significant increase in the investments companies must make to meet these requirements.

“Companies are definitely considering UAE as a destination for crypto business since it is increasingly positioning itself as a go-to jurisdiction and more and more reputable companies choose this path,” he said.

Teraudkalns also said the other prime benefactors could be the near-EU jurisdictions like the UK and Switzerland, depending on how the regulatory regimes develop there.

The EU is the world’s first major jurisdiction to establish a comprehensive regulatory framework for crypto-assets.

Zeitlin said the expected influx of crypto ventures into the UAE comes at a time when the digital asset industry is developing rapidly on a global scale.

“The UAE is positioning itself at the forefront of these developments and intends to remain there,” she said.