RIYADH: UAE is preparing to issue federal licenses to virtual asset service providers by the end of the first quarter of the year.

The move comes in an effort to attract some of the world’s largest crypto companies to the country, Bloomberg reported, citing a government official.

Binance, the world’s largest crypto exchange by trading volume, is among those considering a larger presence in the country.

The Securities and Commodities Authority, or SCA, is in the final stage of amending legislation to allow Virtual Asset Service Providers, or VASPs to set up, said the official, who requested anonymity due to government policy.

A nationwide licensing system for virtual-asset firms could help the UAE better compete with rival financial centers like Singapore and Hong Kong, which are also in the midst of creating fully regulated environments for crypto trading.

Some financial free zones in the UAE have also already issued permits for VASPs.

Dubai Multi Commodities Centre has licensed 22, while Abu Dhabi Global Market has six and Dubai Silicon Oasis Authority has at least one, according to a government report seen by Bloomberg.

In an effort to attract more business, the UAE completed a risk assessment on virtual assets late last year, with the participation of 14 public sector agencies and 16 private sector players.

While there’s a high risk that VASPs may be used to engage in illicit finance schemes, the government concluded proper regulation, rather than an outright ban, can mitigate those threats, the report said.

The SCA will handle regulation with input from the central bank, while local financial centers can establish their own day-to-day procedures around licensing, the official said.

In terms of cryptocurrency mining, the UAE wants to build a crypto mining ecosystem, the official said.

It also seeks to overcome concerns about volatility and financial crime that continue to hamper the crypto industry, according to Bloomberg.

In the coming weeks, the Financial Action Task Force is set to decide whether to include the UAE in the gray list of countries subject to further oversight for deficiencies in combating money laundering and terrorist financing.