On February 7, 2023, the Dubai Virtual Assets Regulatory Authority (VARA) issued its much-anticipated Virtual Assets and Related Activities Regulations 2023 (VARA Regulations), which sets out a comprehensive framework for the regulation of all virtual assets (Virtual Assets Framework) in the Emirate of Dubai in the United Arab Emirates (UAE).
VARA’s regulations were issued pursuant to Law No. (4) of 2022 Regulating Virtual Assets in the Emirate of Dubai, which previously established VARA as the regulator of virtual assets in all zones across Dubai, including Special Development Zones and free zones, but excluding the DIFC.
VARA’s regulation follows the issuance of Cabinet Decision No. (111) of 2022 regulating Virtual Assets and Related Service Providers, which came into effect on January 15, 2023 (the Resolution).
The Resolution prohibits any person from engaging in virtual asset activities in the UAE (excluding ADGM and DIFC) without obtaining approval and a license from either the UAE Securities and Commodities Authority (SCA) or the local licensing authority (i.e., VARA) and after undergoing upstream compliance work.
VARA’s regulations are based on five principles: market integrity and stability, consumer protection, technological neutrality and support for innovation, regulatory resilience, and regulatory efficiency and proportionality. They are consistent with VARA’s primary policy objectives of promoting Dubai and ultimately the UAE as a safe and progressive jurisdiction worthy of attracting significant growth and innovation in virtual assets, and positioning VARA and the UAE as a globally respected and trusted fintech hub, particularly with respect to FATF compliance, and designing an interoperable and pass portable licensing regime.
VARA Regulations address the issuance of virtual assets, giving VARA full discretion to classify tokens as security or not. All entities issuing virtual assets in Dubai must comply with the VARA Rulebooks. The issuance of privacy coins is expressly prohibited.
In addition to the Rulebook which defines the rules for the issuance of virtual assets, and which will certainly be dealt with at the beginning on a case-by-case basis, VARA has issued a series of Rulebooks divided into two categories:
1- Four Activity Rulebooks (Company; Compliance & Risk Management; Technology & Information; and Market Conduct) that define the general mandatory obligations for Virtual Asset Service Providers (VASPs) that meet VARA’s licensing requirements.
2-Seven Activity-Specific Rulebooks that will apply to VASPs on the basis of each activity for which they are licensed by VARA to operate (Advisory Services, Broker-Dealer Services, Custody Services, Exchange Services, Lending and Borrowing Services, Payments and Remittances Services, and VA Management and Investment Services). The VARA Framework is a real game changer for virtual assets in Dubai. It provides an incentive for token issuers to structure their offerings and adapt their internal procedures and compliance tools accordingly, and most importantly, it pushes new and existing VASPs to redefine their business model and core activities in order to apply for and maintain the appropriate license(s) from VARA.
Adib Y Tohme