Dubai’s Virtual Asset Regulatory Authority (VARA) is a transparent and trusted guiding authority in the world of virtual assets. Established in March 2022 by Law No. 4 of 2022, VARA is responsible for regulating, supervising, and overseeing virtual assets and their activities in all zones across the Emirate of Dubai, including Special Development Zones and Free Zones (excluding the Dubai International Financial Centre). VARA has the authority to modify, refine, adjust, or expand its regulations as needed to adapt to the evolving global virtual asset industry.
VARA is committed to creating an advanced virtual asset framework that protects investors, establishes global governance standards, and supports Dubai’s vision for a borderless economy. It welcomes firms, whether from the UAE or abroad, that shares its principles and is currently accepting applications for its Virtual Asset Service Provider (VASP) License. Any firm wishing to engage in virtual asset activities in or from Dubai (excluding DIFC) must obtain a VARA License before commencing operations. Applications can be submitted through Dubai Economy and Tourism (DET) for mainland firms or any Dubai Free Zone Authority (FZA) within the emirate of Dubai (excluding DIFC).
VARA License for New Firms:
The process for obtaining a VARA License involves two stages: first, an application for initial approval to establish a legal entity and commence operational setup, followed by an application for the VASP license.
VARA License for Existing Firms:
For existing firms conducting virtual asset activities in or from Dubai (excluding DIFC) before February 7, 2023, the requirement was to contact their commercial licensor (DET or the relevant FZA) by April 30, 2023, to submit an Initial Disclosure Questionnaire (IDQ). Firms that missed this deadline should contact their commercial licensor urgently to arrange for submission.
Once an IDQ has been completed, VARA will issue Application Acknowledgement Notices (AAN). Firms receiving an AAN must submit a VASP License application by August 31, 2023.
VARA has identified seven distinct Virtual Asset (VA) activities to encompass the current spectrum of available VA services. This list is designed to be flexible and adaptable to the evolving global sector, allowing room for innovation:
1. ‘Advisory Services’ encompasses the provision of personal recommendations to a client, either at their request or initiated by the Entity providing the recommendation, pertaining to actions or transactions involving Virtual Assets.
2. ‘Broker-Dealer Services’ include activities such as:
- Arranging orders for the purchase and sale of Virtual Assets between two Entities.
- Soliciting or accepting orders for Virtual Assets and accepting currency or other Virtual Assets for such orders.
- Facilitating the matching of transactions in Virtual Assets between buyers and sellers.
- Engaging in Virtual Assets transactions as a dealer on behalf of the Entity for its own account.
- Making a market in Virtual Assets using client assets.
- Providing placement, distribution, or other issuance-related services to clients issuing Virtual Assets.
3. ‘Custody Services’ involve the safekeeping of Virtual Assets for another Entity, with actions taken only upon verified instructions from or on behalf of that Entity (Note: Requires a separate legal entity and license).
4. ‘Exchange Services’ comprise activities such as:
- Conducting exchanges, trades, or conversions between Virtual Assets and currency.
- Conducting exchanges, trades, or conversions involving one or more Virtual Assets.
- Matching orders between buyers and sellers and conducting exchanges, trades, or conversions involving [i] Virtual Assets and currency or [ii] one or more Virtual Assets.
- Maintaining an order book in support of the aforementioned activities.
5. ‘Lending and Borrowing Services’ involve the transfer or lending of a Virtual Asset from one or more parties [the Lender(s)] to one or more other parties [the Borrower(s)]. The Borrower(s) commit to returning the Virtual Asset, either at the Lender’s request, at any time during or at the end of the agreed-upon period, either to its interest or on behalf of others’ interest.
6.’VA Management and Investment Services’ entail acting on behalf of an Entity as an agent, fiduciary, or taking responsibility for the management, administration, or disposition of that Entity’s Virtual Assets. Examples may include investment management services or managing Virtual Assets in other ways. This category also includes taking responsibility for ‘staking’ Virtual Assets for the purpose of earning fees or other values paid to validators and/or node operators of a ‘proof-of-stake’ DLT.
7. ‘Transfer and Settlement Services’ refer to the transmission, transfer, and/or settlement of Virtual Assets from one Entity to another Entity or from one Entity to another VA Wallet, address, or location.
Licensed VASPs can consolidate various activities under a single license, except for Custody Services, which necessitates a separate legal entity and license. Proprietary trading or trading their group’s portfolio of assets is not permitted.
VASPs licensed for multiple activities must meet the requirements for each activity consistently. To offer virtual asset services in or from Dubai, to both local and global customers, VASPs and traditional economy entities must obtain a VARA License before commencing any virtual asset activities.
Other Virtual Asset Activities
Proprietary Trading: VA Proprietary Trading necessitates obtaining a no-objection certificate (NOC) from VARA to confirm that the activity can be conducted under regulatory oversight without a VA License. Furthermore, proprietary trading activities exceeding certain trading volumes must be registered with VARA.
To secure a Proprietary Trading NOC, VASPs should initiate contact with their respective commercial licensors (Free Zones or DET) to complete their Initial Disclosure Questionnaire.
Virtual Asset Issuance Activities: Entities engaged in Virtual Asset Issuance activities are required to obtain approval for their whitepaper from VARA, as outlined in the “VA Issuance Rulebook,” prior to commencing such activities.