The GCC region has been experiencing a rapid evolution in virtual asset adoption, prompting a diverse set of regulatory approaches across its member countries. To comprehend this evolving landscape, it is essential to categorise the countries based on the status of their virtual asset regulations: Legal, Prohibited, Grey Area, and In Progress. The infographic below offers a visual representation of this classification.

The United Arab Emirates (UAE) has emerged as a leader in blockchain and cryptocurrency innovation. Recent developments include Resolution No. 111 of 2022, which regulates virtual assets and service providers across the Emirates. Dubai has established the Dubai Virtual Asset Regulatory Authority (VARA) to oversee the industry.

Virtual Asset Service Providers (VASPs), including cryptocurrency companies, must obtain a license from the Securities and Commodities Authority or local regulatory bodies. The UAE’s progressive approach has attracted numerous cryptocurrency exchanges and blockchain startups to operate in the country, positioning it as a prominent player in the global crypto landscape.

Virtual Assets in Saudi Arabia find themselves in a legal grey area. While the government has prohibited banks from processing crypto transactions and declared crypto trading illegal in 2018, there are currently no legal penalties for individuals engaging in digital asset trading. This uncertain legal environment may deter potential crypto investors, but NFTs are considered a safer option as they are not subject to the crypto ban.

In the future, as neighbouring countries in the region work on establishing regulatory frameworks for digital asset trade, Saudi Arabia may also move towards regulation. Given the country’s tech-savvy youth population, there is a likelihood that regulatory measures may be introduced to legitimise the crypto and digital asset space in the coming years.

Bahrain has made strides in creating a virtual asset-friendly environment. In 2019, the Central Bank of Bahrain (CBB) introduced the “Crypto-Asset Module,” focused on compliance, security, and customer protection for crypto exchanges. Companies operating in Bahrain’s crypto market must obtain a license and adhere to anti-money laundering (AML) regulations.

Recent developments in March 2023, showcase Bahrain’s commitment to staying at the forefront of crypto regulation. The CBB introduced amendments to its Crypto-assets Module, expanding its scope to include “Digital Token Offerings.” This expansion brings offerings of digital tokens with security-like characteristics under the regulatory umbrella, enhancing investor protection. Additionally, these amendments grant virtual-asset licensees the ability to engage in additional activities with CBB approval, diversifying their services.

Kuwait is taking a stringent approach to cryptocurrencies. In 2023, the Capital Markets Authority (CMA) declared an absolute prohibition on virtual asset-related activities, including payments, investments, and mining. Local regulators are also barred from issuing licenses for virtual asset services. This move is motivated by concerns about the inherent risks associated with cryptocurrencies, which lack legal status, support, and can experience significant price volatility.

The CMA’s new regulations are part of Kuwait’s efforts to combat money laundering and terrorist financing, with penalties outlined in Kuwait’s Anti-Money Laundering laws.

In January 2020, Qatar’s financial authorities prohibited most virtual asset services within the Qatar Financial Centre (QFC), allowing only digital asset services tied to token securities. Additionally, trading Bitcoin was declared illegal due to concerns over its volatility and potential involvement in financial crimes, as well as the lack of underlying assets.

These actions were taken to safeguard the country’s financial system, ensuring stability and combating potential issues related to terrorism financing and money laundering.

Fast forward to October 2023, Qatar initiated a public consultation to explore the introduction of a cryptocurrency framework tailored for the Qatar Financial Centre (QFC). This framework would regulate investment tokens representing underlying assets, aligning with specified products under existing financial services regulations. Qatar’s willingness to adapt to the evolving digital asset landscape is evident in this forward-looking initiative.

The Central Bank of Oman (CBO) has repeatedly warned it has yet to license any entity to trade cryptocurrencies in Oman and that currency banking laws do not cover any digital currencies and activities involving their use, despite a significant number of residents holding cryptocurrencies. In Feb, 2023, Oman’s Capital Market Authority (CMA) announced plans to establish a comprehensive Virtual Assets Regulatory Framework. This framework will encompass licensing procedures for virtual asset service providers (VASPs), monitor virtual asset activities, and manage risks associated with new asset classes.

The framework’s goals include creating a well-regulated virtual asset market, preventing market abuse, and offering a secure platform for financing and investment while mitigating risks. It will apply to various virtual asset activities, such as token issuance, crypto assets, crypto exchange services, and initial coin offerings (ICOs).

Across the GCC, there is a growing emphasis on implementing AML and KYC regulations to prevent illicit activities associated with virtual assets. The UAE and Saudi Arabia have introduced AML and KYC regulations for businesses involved in virtual asset trading, while Qatar and other countries are also working on implementing similar measures.

The GCC region boasts a diverse regulatory landscape for virtual assets. Some countries have embraced them, while others maintain a cautious approach or impose bans on specific virtual asset services. Regardless of the approach, there is a shared commitment to implementing AML and KYC regulations to deter illicit activities and ensure a safe and transparent environment for virtual asset transactions. As the global virtual asset ecosystem continues to evolve, the GCC countries will likely refine their regulatory frameworks to strike a balance between innovation, security, and compliance.