With the rising popularity of Virtual Assets such as Cryptocurrencies and NFTs, as well as the increased significance of blockchain technology across a wide range of industries throughout the world, the potential for development in the Virtual Asset market is enormous. The Virtual Asset sector is poised to capitalize on Dubai’s well-established position as a hyper-connected pro-business metropolis, as well as its ongoing move to be an ever-evolving commercial capital meeting the demands of the future economy.
VARA is the body responsible for regulating, managing, and overseeing Virtual Assets and associated operations in all zones within the Emirate of Dubai (including Special Development Zones and Free Zones but excluding the DIFC). The Dubai Virtual Asset Regulatory Authority (VARA) issued the Virtual Assets and Related Activities Regulations 2023 (the Regulations) on 7 February 2023, establishing an all-encompassing virtual asset regulatory framework applicable to all Virtual Asset Service Providers (VASPs) in Dubai (excluding the Dubai International Financial Centre (DIFC). The Regulations provide much-needed regulatory clarity, which should support investor protection, long-term market growth, and stability in the virtual assets industry.
The regulation covers seven licensed virtual asset activities (each a Virtual Asset Activity):
- Advisory services
- Broker-Dealer services
- Custody services
- Exchange services
- Lending and Borrowing services
- Payments and Remittances services
- Management and Investment services
In Dubai, no entity may conduct any Virtual Asset Activity for profit or advertise, provide, or represent to do so unless it is:
– authorized and licensed by VARA for such activity.
– a licensed employee engaging on or otherwise supporting such an activity on behalf of its employer.
– an Exempt Entity.
VARA’s license process has recently been modified and expanded upon. The licensing procedure now has three distinct alternatives for applicants: current the minimum viable product (“MVP”) applicants, existing legacy virtual asset service providers (“VASPs”), and new applications. All three types of candidates must go through either the MVP or the full market product (“FMP”) processes. All VASPs who are now engaged in or plan to engage in regulated activities must apply for a regulated VARA license.
VARA Licensing Process
Category A: Current MVP Applicants
- The MVP procedure is as follows: initially, applicants must get a provisional permission (“PP”), then a preparatory license (“PL”), and ultimately an operating license (“OL”).
- VARA will advise applicants who are presently undergoing the MVP process whether they should continue or move to the FMP procedure.
Category B: Existing Legacy VASPs Operating in Dubai
1) All existing legacy VASPs (not currently undertaking the MVP process) are subject to the FMP process and must, if relevant, complete one of the following:
– Apply for an FMP regulated license.
– Register for an FMP. This applies to VASPs who are carrying out operations that fall under the purview of VAs and associated activities, although the nature of the activities may not necessitate complete regulatory oversight by VARA. While a regulated license is not required in this case, registration is required for the VASP to operate in the market.
– Obtain a VARA no objection certificate to provide services and products that (i) do not fall under the VARA remit but are either allowed to be undertaken as long as they do not violate any other Emirate laws/rules or (ii) are determined to be low/minimal risk at the time of operation.
2) Important dates for legacy VASPs that have not yet participated in the MVP process:
– Such VASPs must submit the Information Disclosure Questionnaire (“IDQ”) by March 31, 2023.
– After reviewing the IDQ, VARA will notify the VASP of any additional measures that must be taken. VASPs who are obliged to apply for an FMP controlled license or to be FMP registered in this category must complete their applications by August 31, 2023.
– All VASPs that have not submitted an IDQ will be obliged to stop all regulated activity on May 31, 2023.
Category C: New applicants seeking a regulated license post the 7th of February 2023 (when the VARA FMP regulations were released)
New applicants can begin the application procedure through their commercial licensor (the Dubai Department of Economy and Tourism or free zone authorities other than the DIFC) or directly through VARA:
- Complete the IDQ and return it to VARA.
- Complete operational setup and establishment/incorporation processes as needed, subject to VARA’s initial approval.
- FMP controlled licensing application must be submitted to VARA.
Exceptions to the need of acquiring a regulated license
The following individuals are excluded from acquiring a license:
– Employees who assist their licensed employers; and
– Choose licensed business specialists.
Registration is required for large proprietary traders.
- Any firm actively investing in its own VA portfolio of USD 250 million or more within a rolling 30-day period must register with VARA before to investing or no later than three days after investing the amount.
– This registration does not imply the issuance of a regulated license.
– This entity cannot accept or trade VAs from other entities.
Other market players may register voluntarily
Any organization seeking a commercial or free zone license from Dubai for the following activities may also voluntarily register with VARA:
– Providers of distributed ledger technology-related technical services.
– Companies that actively invest in their own VA portfolio.
This registration does not imply the issuance of a regulated license.
The UAE continues to demonstrate its leadership in the digital economy and virtual assets, and we are seeing an increase in businesses looking to enter the virtual assets sector in the UAE as a result of the anticipated issuance of the VARA Regulations and the growing number of regulations governing virtual assets in the UAE (including the financial free zones) in recent times. The Regulations are a world first, and they have the potential to set a benchmark for the sector and motivate other nations to develop identical laws and regulations.
If you or your company intends to deal with virtual assets in the UAE, it is critical that you understand what permissions / licenses may be necessary to avoid penalties.
