Dubai's Virtual Assets Regulatory Authority VARA

Introduction:

Established as the world’s initial independent regulatory authority for virtual assets, VARA is built on principles of economic sustainability and cross-border financial security. By establishing international standards for virtual assets, VARA helps to ensure that Dubai maintains and further strengthens its position as a global leader in the world of digital finance.

What is VARA?

Established in March 2022, following the effect of Law No. 4 of 2022, VARA is the competent entity in charge of regulating, supervising, and overseeing Virtual Assets (VA) and VA Activities in all zones across the Emirate of Dubai, including Special Development Zones and Free Zones but excluding the Dubai International Financial Centre.

Development of VARA:

The establishment of VARA comes as a part of the strategy of the Dubai Securities and Exchange Higher Committee to establish the UAE as a global player in the virtual asset industry. VARA aims to develop a digital economy in the city to boost its competitive edge locally and internationally.

Key Aspects of VARA:

The Regulations are a world-first and could set a standard for the industry and encourage other countries to prepare their own equivalent rules and regulations.

The Virtual Assets and Related Activities Regulations 2023, sets out a comprehensive Virtual Asset (VA) Framework, aimed to develop a digital economy, encourage innovation and attract investments.

As the world's first independent regulator for virtual assets, VARA serves as a transparent and trusted guiding authority for the emerging world of virtual assets. VARA aims to take its mission global by creating an easy to replicate framework to regulate the industry.

‘Virtual Assets’ is defined under Law No. 4 of 2022, as “a digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes. This includes Virtual Tokens, and any digital representation of any other value as determined by VARA”. A few examples of virtual assets are cryptocurrencies such as Bitcoin and non-fungible tokens (NFTs).

Legal Framework:

No entity may carry out any Virtual Asset Activity by way of business or promote, offer, or purport to do so, in Dubai, unless it is:

1. Authorised and licensed by VARA for such activity.

2. An employee carrying on or otherwise facilitating such an activity on behalf of its employer that is licensed by VARA;or

3. An Exempt Entity - These Entities will not subject to the licensing requirements under VARA, to the extent wherein such entities have notified VARA and obtained a no-objection confirmation of its Exempt Entity status prior to undertaking any Virtual Asset activities in Dubai.

Regulation and Rulebooks

In addition to the Regulations, VARA has released a number of rulebooks, for the day-to-day governance of the Company and its transactions.

VASPs licensed by VARA are required to comply with the Regulations as well as the relevant Rulebooks, which includes:

• Compulsory Rulebooks - which all VASPs must comply with.

i. Company Rulebook

ii. Compliance and Risk Management Rulebook

iii. Technology and Information Rulebook

iv. Market Conduct Rulebook.

• ·Activity Specific Rulebooks - one for each of the seven licensed activities - wherein VASPs carrying on such related activities must comply with.

i. Advisory services;

ii. Broker-Dealer services

iii. Custody services

iv. Exchange services

v. Lending and Borrowing services

vi. Payments and Remittances services

vii. Management and Investment services,

• The Virtual Asset Issuance Rulebook, which provides the rules for the issuance and related activities of virtual assets.

Compliance requirements:

All Virtual Asset Service Providers (“VASPs”) operating in Dubai must be licensed by VARA. To secure a license from VARA, VASPs must meet the following requirements including, but not limited to:

• demonstrating that the VASP has adequate financial resources to operate its business.

• implementing customer due diligence procedures.

• establishing effective policies and procedures in order to manage potential risks associated with virtual assets.

• establishing adequate systems in relation to anti-money laundering and terrorist financing.

• establishing effective governance controls.

• ensuring that senior management and employees are fit to carry out their assigned roles. Anti-Money Laundering and Combating the Financing of Terrorism

Anti-Money Laundering and Combating the Financing of Terrorism

VARA is designated as a supervisory authority for the Emirate in respect of all VASPs and Virtual Asset Activities. It is responsible for regulation in relation to money laundering in the Emirate in respect of all VASPs and Virtual Asset Activities and has the power to supervise compliance with relevant federal AML / CFT Laws in the Emirate.

Conclusion:

VARA’s role is to provide a world-leading regulatory framework to protect investors, maintain high levels of risk assurance and facilitate virtual asset innovation in the emirate of Dubai. The UAE has remained committed to enabling these drivers safely, updating its oversight and regulatory approach, addressing global risks of money laundering (ML) and terrorist financing (TF), arising from the potential misuse of new technologies.