While the world waits to see how the People’s Bank of China moves to regulate bitcoin and digital currencies, another central bank is quietly putting its own rules in place.
The Central Bank of the United Arab Emirates (UAE) released a new regulatory framework earlier this month, aimed at providing a basis for the development of a new digital payments ecosystem as part of a broader modernization drive.
The framework, published on 1st January, applies to companies that offer withdrawals and deposits to payment accounts, debit and credit services (both retail and government), remittances and peer-to-peer payments.
Yet, buried in the text of the framework is the stipulation that "all virtual currencies (and any transactions thereof) are prohibited" for businesses that fall under these categories. In the framework, virtual currencies are defined as "any type of digital unit used as a medium of exchange, a unit of account or a form of stored value", excluding loyalty points and other similar digital products.
To be sure, the UAE central bank’s steps aren’t as direct as the ones taken by the PBoC, which has met with bitcoin exchange representatives in recent days and intends to scrutinize exchanges more closely.
But the framework indicates that applicable payment service providers (PSPs) in the UAE are prohibited from handling or conducting digital currency transactions – echoing, in some ways, a statement from the PBoC in 2013.
On the other hand, sources in the region say the wording of the framework leaves it open to interpretation by central bank officials who have broad latitude over the movements of money within the UAE.
Simply put, it’s not entirely clear at this time how far-reaching the decision may be, and such clarity will come only when the central bank begins to put the rules into practice on a case-by-case basis.
Sally Sfeir-Tait, a partner for Clyde & Co, who has a special focus on regulatory issues in the region, told CoinDesk:
"What is being discussed now? Is it an all-encompassing prohibition of virtual currencies of any form, or is it only in the stored value and electronics payments space?"
A state-backed development effort in Dubai has attracted particular interest as officials look to digitize a range of government sources, though the non-financial nature of those projects suggests that they will fall outside the scope of the UAE central bank’s framework.
According to at least one observer, the move didn’t come as a shock.
Raza Rizvi, a counsel for Simmons & Simmons, who specializes in the region, said that the move fits with its "regulatory style".
Indeed, sources say that the central bank’s prohibition is in line with a stance that errs on the side of caution when it comes to financial monitoring.
"While governments have a palpable excitement about the underlying technology and are 'digitally awake', they are not so comfortable with the absence of central control that comes with cryptocurrencies," Rizvi told CoinDesk.
Sfeir-Tait suggested that, in this case, the central bank's actions are largely in line with its mandate as the UAE’s chief monetary watchdog.
"At the end of the day, the central bank's main objective is financial and monetary stability, and that’s how they’d be looking at it," she said.
But what about those businesses that could be potentially affected?
Ola Doudin, CEO of bitcoin exchange startup BitOasis, highlighted to CoinDesk that the regulation "is specific to companies that fall under the new PSP licensing", meaning startups like hers aren't affected.
Moving further, there are only a handful of startups operating in the region, with Doudin's being a rare one to focus on the bitcoin blockchain.
"To date there is still no clear regulatory framework for digital currency companies and exchanges locally and regionally," Doudin said, adding:
"We welcome suitable regulations by officials and we always strive to do our part to continuously educate and set a high standard for the industry in UAE."
The full UAE regulatory framework release can be found below: