What you should know about Dubai’s Digital Assets Law: What it is and its impact

• The Digital Assets Law, which took effect on March 8, 2024, provides a clear legal framework for digital assets within the DIFC.
• It addresses the control, transfer, and management of digital assets while updating existing laws for better efficiency and security.
• This legal clarity reduces uncertainty for fintech businesses, fosters innovation, and attracts global investors with its robust regulatory framework.

Dubai has long been a launching bed for fintech innovation due to government-led endeavours designed to create an environment conducive to financial and technological advancement. The emirate’s vision of flourishing in financial technology is complemented by a range of legislative frameworks to attract foreign enterprises and inspire local entrepreneurs. Dubai’s Virtual Assets Regulatory Authority (VARA) is a particularly important cog within the metaphorical fintech machine. It serves a critical function in overseeing the virtual assets sector and establishing regulations that guarantee a stable and dynamic marketplace.

However, it is important to note that VARA’s jurisdiction does not extend to the Dubai International Financial Centre (DIFC). This limitation underlines the importance of the DIFC’s own regulatory framework. As such, the implementation of the Digital Assets Law becomes paramount. This law is a significant advancement in the regulation and supervision of digital assets within the DIFC — still complementing VARA’s broader regulatory initiatives and ensuring comprehensive oversight across the diverse financial landscape of Dubai.

This blog will explore the specifics of the Digital Assets Law and its impact on businesses operating within the DIFC.

DIFC’s Digital Assets Law: A pioneering legal framework

The DIFC’s Digital Assets Law went into effect on March 8, 2024, and offers a strong legal framework for digital assets. It specifically addresses their legal features and clarifies their control, transfer, and management. Here are a few points of the Digital Assets Law:

Control and title

Having control over a digital asset means having the exclusive ability to use and transfer it. Legal ownership is obtained through control and the intention to exercise that control.

Transfer and rights

Transfer of ownership occurs when control is passed to someone else, and the original owner intends to give up their claim. There are also provisions for rights and claims in case of the asset holder’s death, incapacity, or insolvency.

Legal updates

Existing DIFC laws, such as the Contracts Law, Law of Obligations, Law of Security, and Trust Law, have been updated to accommodate the new digital assets regulations. The DIFC Amendment Law No. 3 of 2024 introduces provisions for electronic transferable records, improving efficiency and security in international transactions through smart contracts.

New law of security

The new Law of Security replaces the 2005 Law of Security and is consistent with international best practices, particularly the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Secured Transactions. This amended law defines the treatment of security interests in digital assets and incorporates financial collateral laws.

Impact on fintech businesses

The enactment of Dubai’s new Digital Assets Law has great implications for fintech businesses operating within the DIFC. The law eliminates much of the legal uncertainty that has previously plagued fintech enterprises by defining digital assets as property and addressing the intricacies of their use. This clarity facilitates the development of new financial products and services and attracts global investors seeking a secure and predictable regulatory framework. 

Simply put, fintech companies are now presented with opportunities to leverage digital assets more confidently about lending, smart contracts, and cross-border transactions, knowing that a robust legal framework backs their activities. Businesses can now explore innovative ways to secure credit using digital assets, which could be a game-changer in terms of accessing capital and driving growth.