UAE Banks Poised To Bring Virtual Assets Into The Financial Mainstream

(MENAFN- Khaleej Times) The UAE's decision to allow banks to enter the virtual-asset market marks a significant step in the evolution of the country's financial sector, opening the door to broader institutional participation and potentially bringing digital assets closer to mainstream investors and businesses.

Industry executives believe the framework could strengthen the UAE's standing as a leading global digital-assets hub by enabling banks to offer regulated virtual-asset services through existing customer relationships and trusted financial infrastructure.

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"The biggest change could be a more seamless connection between banking and virtual-asset services," said Ahmed Ismail, co-founder of Daman Virtual. "Allowing banks to participate more directly could make that experience considerably simpler." He noted that many clients are seeking "regulated access, liquidity and efficient settlement" rather than speculative exposure, adding that "convenience alone doesn't build confidence" without clear safeguards around custody and investor protection.

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Recent security breaches in the digital-asset industry, including the high-profile Binance hack, have also renewed debate about the safest ways for investors to gain exposure to virtual assets.

Andrew Forson, President of DeFi Technologies, said such incidents are likely to strengthen demand for regulated investment vehicles.

“Hacks like this will encourage the adoption of regulated wrappers like ETPs and ETFs for digital assets. They provide two tiers of security around the investment - the assets themselves and the balance sheet of the company,” Forson said.

He added:“They also professionalise the custody with regulatory oversight. Jurisdictions that do not have regulated wrappers for digital assets, like ETPs and ETFs actively trading on their traditional exchanges, are at a clear disadvantage.”

According to Soham Jethani, founder and managing partner of Septten Advisors, investor protection ultimately depends on the legal rights attached to an investment rather than the platform used to access it.

“Centralised exchanges concentrate control over customers' assets, which is precisely why effective regulation is paramount,” he said.“Self-custody and DeFi replace some intermediary risks with personal and technical risks, while ETFs and ETPs outsource custody rather than eliminate it.”

Jethani said greater bank participation could unlock a substantial new customer base for virtual assets.

"Wider bank participation can bring a much larger group of customers into virtual assets with much more confidence and much less fear," Jethani said. Many prospective investors remain reluctant to establish separate relationships with specialist providers or are uncertain about the sector's credibility. If a bank offers a regulated service, he said, "it inspires confidence and makes them more willing to experiment with something new". He added that integrating funding, custody and customer support into existing banking channels could make digital-asset investing more accessible.

The regulatory development also reinforces the UAE's competitive position internationally.

"This strengthens the UAE's position as a serious centre for virtual assets," Jethani said, noting that major global exchanges and service providers already maintain operations in the country. While some jurisdictions are still developing their regulatory frameworks, "the UAE has now spent years testing and refining its approach," he said, describing the latest move as taking the market "firmly into Step 2 of its evolution".

Ahmed Ismail said the long-term opportunity extends beyond attracting additional crypto firms. "The bigger opportunity isn't simply attracting more crypto businesses," he said. "It's building a financial centre where traditional and digital assets can operate together, and where institutions have the confidence to deploy capital at scale." He pointed to strong growth in institutional activity as evidence that demand for regulated digital-asset infrastructure continues to increase.

A key question now is whether banks are operationally prepared to offer such services.

"Regulatory permission is a starting point, not proof of operational readiness," Ismail said. While banks already have significant experience in compliance, governance and risk management, he noted that "custody, private-key management, cybersecurity and blockchain transaction monitoring all require specialist expertise". He added that some institutions may find it more effective to partner with established digital-asset providers than to build capabilities internally.

Jethani was similarly cautious. "In short: no, I do not believe they are," he said when asked whether banks are fully ready today. However, he described the situation as "a substantial opportunity for banks and specialists to build better services together". Banks that invest in technology, talent and partnerships, he argued, will be well positioned to develop new revenue streams as demand grows.

Adam Popat, CEO of SettleMint, offered a more measured assessment, arguing that readiness varies by institution. "The larger UAE banks already maintain mature cybersecurity, compliance and risk functions," he said. "Several UAE banks have spent the past few years in sandboxes and pilots, so they are not starting from zero." In his view, institutions that extend existing infrastructure into digital assets are likely to achieve commercial deployment more quickly than those building entirely new systems.

Looking ahead, executives expect tokenised financial products to be among the first beneficiaries of the new framework.

"Tokenised deposits are the most likely starting point," Popat said. Such products remain within banks' existing regulatory perimeter while enabling faster settlement and programmable payments. "Tokenized bonds" are likely to follow, he added, with future ecosystems potentially allowing "a tokenized bond settling against a tokenized deposit in a single transaction".

Jethani expects "a meaningful expansion in bank-led custody and trading over the next two or three years", with tokenised securities and payment-token applications also gaining traction. "I am bullish on adoption," he said, although he cautioned that as customers become more comfortable with digital assets, banks will need to continue proving their value proposition.

For the UAE financial sector, the emerging consensus is that the next phase of growth will be driven less by standalone crypto adoption and more by the convergence of traditional banking infrastructure and regulated digital-asset markets.

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