May 24, 2022 Ali Ashar

VARA – Dubai’s First Crypto Law Regulations

VARA will be responsible for licensing and regulating the sector across Dubai’s mainland and the free zone territories (excluding DIFC)

What is VARA?

The Virtual Assets Law establishes the Dubai Virtual Assets Regulatory Authority (“VARA”), an entity affiliated to the Dubai World Trade Centre Authority (“DWTC Authority”), as Dubai’s primary virtual assets regulator.

Under the Virtual Assets Law, VARA aims to promote Dubai’s position as a regional and international destination in the virtual assets sphere and to develop Dubai’s digital economy. VARA further seeks to enhance investment awareness of the virtual assets sector, attract investment and companies operating in the field of virtual assets to establish themselves in Dubai, and provide the regulations, rules, and standards necessary to regulate, supervise and control all matters related to virtual assets.

VARA’s Objectives:

      1. To promote the Emirate as a regional and international hub for Virtual Assets and related services; to boost the competitive edge of the Emirate at the local and international levels; and to develop the digital economy in the Emirate;
      2. To increase awareness on investment in the Virtual Asset services and products sector, and encourage innovation in this sector;
      3. To contribute to attracting investments and encourage companies operating in the field of Virtual Assets to base their business in the Emirate;
      4. To develop the regulations required for the protection of investors and dealers in Virtual Assets, and to endeavor to curb illegal practices in coordination with the concerned entities; and
      5. To develop the regulations, rules, and standards required for regulating, supervising, and overseeing Virtual Asset Platforms, Virtual Asset Service Providers, and all other matters related to Virtual Assets.

Scope of the New Law

The scope of the Virtual Assets Law is expansive, with “virtual assets” defined broadly as “a digital representation of value which can be digitally traded, transferred, or used as an exchange or payment instrument or for investment purposes”; this, therefore, would include cryptocurrencies, tokens, non-fungible tokens and any other virtual asset determined by VARA.

Activities Subject to Permits

      1. The following Activities require Permits and are subject to oversight by VARA, in accordance with the provisions of this Law:
        1. Provision of Virtual Asset Platform operation and management services;
        2. Provision of services for the exchange between Virtual Assets and national or foreign currencies;
        3. Provision of services for the exchange between one or more forms of Virtual Assets;
        4. Provision of Virtual Asset transfer services;
        5. Provision of Virtual Asset safekeeping, management, or control services;
        6. Provision of services related to Virtual Asset Wallets; and
        7. Provision of services related to the offering, and trading in, Virtual Tokens.
      2. VARA may classify and define the Activities set forth in paragraph (a) of this Article, and establish the regulations and rules required to conduct them.
      3. VARA may, subject to the approval of the Board of Directors, add any activity, business, practice, or service related to Virtual Assets to the list of Activities that require Permits and are subject to oversight by VARA.
      4. VARA will, in coordination with the Concerned Entities, prepare a list of the activities, businesses, practices, services, and products that are related to Virtual Assets and are prohibited in the Emirate.

Rules and conditions for the practice of the regulated activities may expand the list of activities that are subject to the authorization and control of VARA.

Licensing and On-Going Requirements

In order to obtain a license, the Virtual Assets Law stipulates that applicants must establish Dubai as the headquarters for their business and must obtain a commercial business license from the relevant licensing authority in Dubai. The specific licensing process and additional ongoing requirements with respect to anti-money laundering, disclosure, transparency and know-your-client (“KYC”) procedures are expected to be set out in the regulations and decisions supplementing the Virtual Assets Law.

The Broader Landscape

The Virtual Assets Law comes at an opportune time for the UAE, which is the Middle East’s third-largest crypto market, with a transaction volume of approximately $26 billion, trailing Turkey and Lebanon. In accordance with the UAE’s mandate to facilitate business while providing appropriate investor protections, there have been various other recent developments in the regulation of virtual assets. For example, in February 2022, it was reported that the federal Securities and Commodities Authority (“SCA”) is amending legislation to allow virtual asset service providers to set up in the UAE. Moreover, the Financial Services Regulatory Authority (“FSRA”) of the Abu Dhabi Global Market (a financial free zone in the Emirate of Abu Dhabi) has issued crypto exchange licenses to a number of companies. In addition, as of November 2021, three companies were undergoing FSRA’s approval process and various other companies (which include providers of custody services to investors) were in the process of establishing operations. In March 2021, the Dubai Multi Commodities Centre (“DMCC”), the largest free zone in the UAE, set up a regulatory framework for crypto firms in collaboration with the SCA. The recent enactment of the Virtual Assets Law together with these developments, and a number of others, reflect the ever-growing interest in virtual assets in the UAE.

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