UAE’s Digital Asset Playbook Draws Global Giants as Regulatory Clarity Spurs Adoption

The United Arab Emirates has positioned itself at the forefront of digital asset regulation, creating one of the world's clearest frameworks for banks, for fintechs, and institutional investors operating in the blockchain economy.

And or but beyond the headlines and policy announcements, what does the regulatory certainly actually mean in practice?

Here we have our guest Muhammad Babar, the Digital Assets and Compliance Lead at the MENA Fintech Association.

We're going to explore more how the UAE's regulatory leadership is shaping the future of finance and What the next 5 years could mean for this region.

Let's start, Mohammed, with the UAE and it achieved real regulatory clarity on digital assets.

Now what's actually changing on the ground in the UAE?

Thanks first of all for the invite.

I think from a perspective you have to kind of remember setting the context.

UE started off with this regulatory space back in 2018, I would say from ADGM, uh, whenever digital assets were spoken at that time, they were considered as something that regulatory clarity wasn't there.

So UAE by factor of introducing new regulations at the time when no one in the industry were doing anything globally was the pretext that UAE map uh went ahead with.

So now with that context in mind.

UE and its institutions on the ground and global institutions subsequently have had the advantage of being able to have a playground, I would say, or a sandbox where they have actually had an advantage over all other institutions.

What's changing now is that the institutions who first went in with the view that primarily we will get into full integration into the digital asset bit when we have regulatory clarity.

But I would have to use the word now, no excuse now, because for a period of time from the setting up of WAA in 2022, 2020203 to Really industry leading regulations around anything from assets in terms of holding Bitcoin or holding your digital assets, being able to trade them, and to the point also be able to deal with what we call decentralized finance.

All has been there.

The change that we are seeing now is that institutions are moving from boards and other com uh executive committee communications from should we do digital assets or.

Or uh when so the conversation now is moving towards when sorry to just to clarify, yeah, so what we're seeing now is that regulatory clarity is there.

Dubai, a couple of other ins uh uh regulate uh uh uh uh in in Dubai and UAE overall, the regulations are there now.

Now institutions have to make a call on how they can actually work with highly regulated entities within those regulations who have gone through this period of going through, uh, uh, uh, a reg. licensing procedure whereby experts have looked at what they are doing.

Now with the banking institution looking at that risk, they now have very clear frameworks to be able to how they can integrate these digital asset products into themselves.

So in short, the conversation is not if, it's like when, when they, when they actually go in.

OK, so fast forward 5 years, let's say, what does the UAE's early lead in digital asset regulation actually translate into?

We really don't have to look 5 years down the line.

I mean, what we're seeing is, the other, the future, um, uh, what we're seeing is that the top institutions that wanna really make infrastructure plays, financial plays, product plays into the digital asset space are moving here already.

We've got the likes of BlackRock.

We've got the likes of, of, uh, Franklin Templeton, and to name a few who are already in the space.

They're already bringing their institutionalized products to the region.

So 5 years down the line, how I see this as a catalyst is that you need to look at it from a snowball effect.

I think UAE has got that advantage whereby the by they open embrace, that's the word that I wanna use, the regulators openly embraced all players who were coming in and saying that we would like to develop in this new technology called blockchain.

Here's how we would like to do it.

Can we come?

To a consensus on how we could do that.

Full kudos to the regulators in the UAE.

I'm not naming anyone, but in terms of all regulators opened up their arms and they were like, here's our frameworks coming from WARA, and then of course central bank, CMA, all of them.

Did embrace this as a technology that can be incorporated and then integrated into the financial space, so 5 years down the line.

A bit of the future, big institutions, all banks, all funds, if they do not have headquarters here, they will have regional headquarters or businesses that will transverse the region which will include South Asia as well.

We'll connect it from here.

So cross border payments also seems like the biggest near term use case for blockchain here.

What is a well-built version of that actually look like?

Again, very proud to say that we have got now institutions from within UAE who are already working on this and they've got good success.

So in terms of a program, for it to be successful, it starts from the product itself.

So I think there are a lot of times where there's conversations about regulatory clarity, about compliance and others element.

I believe the number one factor for a well established and executed, uh, cross border money movement program, as we call it, will be clarity around the product.

And how you're going to approach it piecemeal.

Now, what, what needs to be kept in mind is that you can't boil the ocean in a single day.

A good implementation from a product perspective needs to slice and dice.

In the case of a cross-border money movement perspective, taking the UAE's example.

You got Pakistan, you've got India, you've got Philippines, you've got Egypt, you've got corridors where there's a major chunk of what's happening.

So I'll take the example of some of our practitioners and companies who I'm very proud to say have implemented many solutions under the full guidance and approval of the central bank stablecoin.

Based Solutions with key corridors in countries where regulations and stablecoins were being used.

So what they did primarily was they very, very carefully curated the corridors where they felt there was the least resistance.

They also were very, very careful about the impact.

If you look at the UAE to Philippines corridor, I do not have the numbers of my mind, but the remittances are in billions.

This is a very, very good case whereby.

But, uh, the products were designed in a way where not only were the products efficient, it actually was meant for a jurisdiction where both parties kind of saw eye to eye in terms of regulations, and UAE again took the lead in terms of being able to have very well regulated virtual asset service providers as they're called, under the water regime and under different regimes as well, whereby when this product actually went live, they had already done.

On the appropriate regulatory review to be there.

So the second element there was that not only was the product OK, but the regulations were clear, and the practitioners who actually built the product on top of it had very clear guidelines and built the product well.

They're learnings every day.

These are the two things from my perspective, which is, which is very important.

But then the third element which comes into the digital asset space is, is the counterparty due diligence.

In normal ways in which money moves, banks, financial institutions, they have very high level of, say, regulatory oversight by their regulators when it comes to digital asset players at certain times, that's the third element that institutions need to very clearly, um, kind of, uh, control.

It's just to say that maybe the third party or the counterparty in the in the cross-border transaction as we call it, the recipient party.

Has let's just say arbitrage in terms of regulatory controls and requirements than institutions in the um in the jurisdiction where there is higher regulation should go for their regulations, not the other ones.

Yeah, it's a very important conversation now about regulations in UAE and let me end with this also as AI and digital assets now converge, are regulators and institutions thinking about the governance side early enough?

The honest answer is it's not possible because I would say the intent is there.

There's a lot of effort going on.

There are a lot of experts, but I'm pretty sure you use these models as well and on a weekly basis there are like so many different, um, enhancements happening to the AI models.

What I would say the regulators are.

Not the only party that we should be considering.

The reason is that they are on that path.

It's actually the way that AI is governed within the institution they're supposed to use that.

I just saw the headline saying that some of our payment providers are already using AI bots to be able to do autonomous payments.

Now just think from a very.

Simple moment regulator currently has an accountable body or a company, and then they believe that there will be an individual on that who would be trained and accordingly and making decisions.

Just in this one small instance of agent commerce, the decision might have been made by two. bots that have been trained on AI and NLM, where, how you put the, put the governance in place.

So I would say this is a piece that is evolving as we speak.

It's a very difficult job.

I do not want to be on the, yeah, we're gonna follow.

Thank you so much.

I appreciate it.

Thanks for the offer.

Thank you.