Dubai has made significant strides with its regulatory framework for cryptocurrencies. In 2023, the Emirate introduced new rules and established the Virtual Asset Regulatory Authority (VARA), tasked with overseeing virtual assets' use, exchange, and investment within its jurisdiction. The authority's comprehensive approach covers everything from licensing requirements to company and compliance obligations. Its meticulousness reflects Dubai's ambition to become a global digital asset leader while ensuring protection and transparency for all market participants.
What is VARA? - A Snapshot of Dubai's Cryptocurrency Regulator
Shaping the contours of the cryptocurrency landscape in Dubai is the Virtual Asset Regulatory Authority (VARA). An instrumental body established recently, VARA stands as a beacon of regulation and oversight in virtual assets and related activities within the Emirate.
Functioning with a broad mandate, VARA's authority extends to every aspect of virtual asset service provision. They set the game's rules by defining the licensing requirements for virtual asset service providers (VASPs). However, their role doesn't merely end at rule-setting; VARA possesses the discretionary power to decide on the duration of licenses and even suspend them when necessary.
VARA's responsibilities continue beyond shaping regulatory guidelines. They also ensure that all entities in Dubai that wish to engage in virtual asset activities are licensed under their oversight. Any institution or individual planning to venture into any virtual asset activity must first obtain VARA's green light.
Types of Cryptocurrency Services Under VARA's Regulation
Each service category comprises specific, stringently regulated functions, ensuring a well-ordered operation of the virtual asset ecosystem. Here is a snapshot of these cryptocurrency services:
Advisory Services
Advisory services revolve around providing personalized recommendations to clients about actions or transactions pertaining to virtual assets. The provision of such advice is conditional upon factors like the client's understanding and experience in virtual asset investments, financial standing, and investment objectives.
Broker-Dealer Services
Broker-dealer services encompass various activities, including facilitating the arrangement of orders, soliciting or accepting orders for virtual assets, matching transactions between buyers and sellers, and conducting transactions as a dealer on behalf of the entity. These services also extend to making a market in virtual assets using client assets and offering placement, distribution, or other issuance-related services to clients launching virtual assets. Entities engaged in these activities must comply with the VA Issuance Rulebook.
Custody Services
Custody services involve the safekeeping virtual assets for other entities and act upon their verified instructions. Only VASPs that maintain each client's assets in separate virtual asset wallets can qualify for a Custody Services Licence, further underpinning the need for a robust and secure custodial infrastructure.
Exchange Services
Exchange services entail conducting exchanges, trades, or conversions between virtual assets and fiat currency or between various virtual assets. This category also includes maintaining an order book to facilitate these transactions.
Lending and Borrowing Services
Under this category, virtual assets are transferred or lent from one or more parties (lenders) to one or more other parties (borrowers), understanding that these assets will be returned either during or at the end of the agreed-upon period.
Payments and Remittances Services
These services involve receiving virtual assets for transmission or transfer from one entity to another or from one entity to a different virtual asset wallet, address, or location.
VA Management and Investment Services
VA Management and Investment Services incorporate acting on behalf of an entity as an agent or fiduciary, or taking responsibility for managing, administering, or disposing of that entity's virtual assets. Services may include investment management or staking virtual assets to earn fees or other amounts paid to validators or node operators of a proof-of-stake Distributed Ledger Technology.
Cost of Providing Cryptocurrency Services in Dubai
The Virtual Asset Regulatory Authority (VARA) mandates a set of license applications and annual supervision fees for each virtual asset service category. Here is a breakdown of the costs associated with providing these services:
Advisory Services
Licence Application Fee: AED 40,000
Annual Supervision Fee: AED 80,000
Broker-Dealer Services
Licence Application Fee: AED 100,000
Annual Supervision Fee: AED 200,000
Custody Services
Licence Application Fee: AED 100,000
Annual Supervision Fee: AED 200,000
Exchange Services
Licence Application Fee: AED 100,000
Annual Supervision Fee: AED 200,000
Lending and Borrowing Services
Licence Application Fee: AED 100,000
Annual Supervision Fee: AED 200,000
Payments and Remittances Services
Licence Application Fee: AED 40,000
Annual Supervision Fee: AED 80,000
VA Management and Investment Services
Licence Application Fee: AED 100,000
Annual Supervision Fee: AED 200,000
The Licence Application Fee is applicable for all license applications, regardless of the type of regulated VA activity. The License Extension Fee applies for each additional VA activity. Importantly, these fees are due at the time of submission of the Licence application, and the application will only be processed once the payments are received.
VASPs must pay an Annual Supervision Fee for each licensed VA activity before conducting any actions. VARA reserves the right, at its sole discretion, to impose additional fees or modify supervision and authorization fees. This discretion may be exercised when VARA deems it necessary to allocate additional resources for regulatory oversight, supervision or in response to complaints made to VARA about a VASP.
Fees imposed by VARA are separate and independent from any fees charged by other competent authorities, whether in the UAE or outside. Furthermore, VARA can impose a fee for applications by prospective issuers seeking approval to issue a Virtual Asset.
Licensing Requirements
Once a license is granted, the Virtual Asset Service Providers (VASPs) must comply with all licensing conditions outlined by VARA. These conditions include, but are not limited to, strict adherence to all Regulations, Rules, and Directives, both at the time of licensing and throughout operation.
In cases where a VASP conducts any licensed VA activity outside the Emirate, compliance with the existing Regulations, Rules, and Directives is considered the minimum standard. In other words, VARA's regulations must be adhered to irrespective of the regulatory regime of the other jurisdiction.
A professional exemption applies to professionals such as registered practicing lawyers, accountants, and professionally licensed business consultants. These individuals do not need a license to carry out any incidental VA activities in their professional practice. However, they must maintain authorization from a competent professional body and hold appropriate professional indemnity insurance. VARA reserves the right to determine whether an entity has invoked this professional exemption appropriately.
There's also a category of entities known as "Exempt Entities" that, subject to certain conditions, aren't required to comply with certain regulatory provisions. These conditions include seeking confirmation of exempt entity status and obtaining no-objection confirmation from VARA before carrying out any VA activities.
Entities involved in large-scale proprietary trading, those investing their own portfolio in Virtual Assets exceeding the equivalent value of USD 250,000,000 within a rolling thirty calendar day, must register with VARA. This registration, however, does not imply a license to carry out any VA activities.
Voluntary registration is open for entities providing technology services related to Distributed Ledger Technology to other businesses or entities actively investing their own portfolio in Virtual Assets.
VARA's Powers
VARA possesses discretion in granting licenses. In doing so, it considers all information provided during the licensing process and any other relevant information. The licensed VA activities will be clearly specified in each license, and VARA may also incorporate any limitations or stipulations it sees fit.
The authority retains the power to vary, suspend, or revoke licenses.
VARA may also impose additional requirements during the licensing process. Finally, VARA charges fees for processing the application for a license or any other authorization and for the supervision of any entity that has been granted a license.
The Rulebooks Governing VA Activities
VARA's regulatory system for Virtual Asset (VA) activities extends to specific Rulebooks. These Rulebooks serve as a guide and regulatory framework, outlining the expectations and requirements for Virtual Asset Service Providers (VASPs) in their operations. They are integral to VARA's regulatory landscape.
General Rulebooks
All VASPs must comply with four primary Rulebooks that govern various activities. These Rulebooks, which may be revised over time, are:
Company Rulebook: This sets forth the regulations concerning the company's governance, management, and operational aspects. It may include stipulations on organizational structure, roles and responsibilities, and general business practices.
Compliance and Risk Management Rulebook: This Rulebook is central to understanding and managing risk. It details procedures for risk identification, assessment, and mitigation. Additionally, it outlines the compliance requirements to ensure adherence to all applicable laws, regulations, and directives.
Technology and Information Rulebook: As VASPs operate in a technologically driven space, this Rulebook provides guidelines on technological infrastructure, data security, information management, and related processes.
Market Conduct Rulebook: This Rulebook is designed to ensure fair and transparent market practices. It includes regulations on professional conduct, market integrity, customer relations, and transparency in operations.
VA Activity-Specific Rulebooks
Beyond the four general Rulebooks, there are several VA Activity-specific Rulebooks that VASPs must adhere to. The applicability of these Rulebooks depends on the specific VA activities the VASP is licensed to perform. They include:
Advisory Services Rulebook: This Rulebook guides the professional and operational standards required when offering advisory services in the VA space.
Broker-Dealer Services Rulebook: For VASPs involved in buying, selling, and dealing in VAs, this Rulebook outlines the specific requirements, responsibilities, and standards to be upheld.
Custody Services Rulebook: VASPs providing custody services for VAs must follow the directives in this Rulebook, which may encompass requirements around the security, handling, and storage of VAs.
Exchange Services Rulebook: This Rulebook governs the standards and operations for VASPs offering exchange services, detailing the guidelines for exchange processes, security measures, and transaction procedures.
Lending and Borrowing Services Rulebook: For those offering VA lending and borrowing services, this Rulebook outlines the specific protocols, risk considerations, and customer relations requirements.
Payments and Remittances Services Rulebook: VASPs facilitating VA payments and remittances must comply with this Rulebook, which stipulates procedures for these services, including security, speed, and customer protection measures.
VA Management and Investment Services Rulebook: For VASPs involved in managing and investing in VAs, this Rulebook governs the regulations for investment strategies, portfolio management, and investor relations.
In conclusion, the series of Rulebooks outlined by VARA signifies the commitment to ensure a thorough, organized, and regulated environment for VA activities. They create a comprehensive structure for VASPs, fostering a level playing field, ethical practices, and the highest degree of professionalism in the industry.
Please visit the official VARA website for additional details regarding these Rulebooks' specific requirements and directives. It provides comprehensive and current information to ensure absolute compliance with all VA Activities regulations.
DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.
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