With the establishment of the Virtual Assets Regulatory Authority (VARA) as the world’s first independent regulator for virtual assets, Dubai is unquestionably a global leader in this pioneering field. The rapid growth of cryptocurrencies, blockchain, and other virtual asset technologies necessitates a robust regulatory environment for Virtual Assets Service Providers (VASPs). VARA Dubai empowers innovation and is responsible for regulating and overseeing the provision, use, and exchange of virtual assets in and from the Emirate of Dubai. Virtual Assets Service Providers (VASPs) aiming to thrive in the Dubai virtual asset market must understand the key aspects of VARA regulations in 2025, the VARA rulebook, and licensing guidelines.
The Virtual Assets Regulatory Authority (VARA) is the central authority established by the Dubai World Trade Centre Authority (DWTCA) for the licensing, supervision, and overseeing of virtual assets, such as cryptocurrency and blockchain, in the Emirate of Dubai. It also covers the Special Development Zones and Free Zones in Dubai but excludes the Dubai International Financial Centre (DIFC). It is the world’s first independent regulator of virtual assets and aims to position the Emirate of Dubai as a regional and international hub for virtual assets. Moreover, the Virtual Assets Regulatory Authority (VARA) strives towards increasing awareness of investment in virtual assets, attracting investors, safeguarding firms from illicit activities, and developing a comprehensive framework for compliance.
Virtual Asset Service Providers (VASPs) must implement strategies to comply with all legal and regulatory obligations, including establishing a Compliance Management System (CMS) and appointment of a Compliance Officer (CO). VASPs must maintain transparency with VARA Dubai and other regulators. A Compliance Officer (CO) is responsible for identifying compliance violations, ensuring adherence to legal and internal standards, and reporting any significant non-compliance to VARA and other authorities.
VASPs must develop policies, procedures, and methodologies for identifying, measuring, managing, and monitoring risks as per their operations’ complexity. Various categories of risks include:
a) Market Conduct Risk: Market conduct risks such as client onboarding risks, risks airing from the structure of a VASP, and cybersecurity risks can be avoided through regular review of financial statements, stress testing, and assessing the impacts of adverse market movements.
b) Liquidity Risk: VASPs must enforce concentration limits, monitor funding mismatches, and establish default procedures to deal with potential challenges.
c) Operational Risks: VASPs should address risks from inadequate or failed processes, systems, or external events through robust operational safeguards.
Additionally, VASPs must maintain a dedicated risk management function, staffed by suitably qualified personnel. The head of this function must have the requisite qualifications and authority to oversee the VASP’s risk exposures. Reports on identified risks should be submitted to the board at least quarterly or more frequently as necessary.
It is mandatory for VASP to conduct internal audits and external audits. They must appoint an independent third-party auditor to audit their financial statements annually. Internal audits must also occur quarterly, with findings and recommendations reported to senior management. Additionally, it is essential to comply with tax reporting obligations.
VASPs are required to do monthly, quarterly, and annual reporting to VARA in accordance with the different reporting requirements. For example, monthly reporting to VARA consists of submitting financial statements, including balance sheets, profits loss statements, and cash flow, with a VA wallet address. In case of any significant changes, immediate written notice must be provided to VARA Dubai.
VASPs are mandated to comply with Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT), under which they must monitor transactions and implement effective AML/CFT systems. VARA AML regulations also emphasize the appointment of a Money Laundering Reporting Officer (MLRO) by VASPs. The essential aspects of compliance with the AML/CFT laws are:
a) Client Screening and Monitoring: VASPs must screen clients, UBOs, transactions, and wallet addresses for illicit activity and potential sanctions. Effective AML/CFT systems must be implemented to monitor transactions.
b) Customer Due Diligence (CDD): Verification of clients and identification of ultimate beneficial ownership (UBO) must be performed before establishing business relationships or executing transactions.
c) Risk assessments and Suspicious Transactions Reporting (STR): This framework ensures that VASPs operate transparently, protect assets, and mitigate risks associated with financial crime.
Any Entity intending to conduct Virtual Asset (VA) activities in the Emirate must obtain prior authorization and a VARA license for each VA activity. License holders must adhere to all VARA regulations i2025, including compliance with regulations, rules, and directives. Entities must demonstrate their ability to meet VARA’s regulatory standards, including presenting a compliant business structure, a robust operational setup, and qualified management.
a) Activities Outside of the Emirate:
VASPs licensed by VARA to conduct Virtual Asset (VA) activities in Dubai must also comply with relevant regulations in other jurisdictions and adhere to the higher of the two regulatory standards.
b) Professional Exemption:
Professionally registered lawyers, accountants, or other licensed business consultants performing VA activities incidental to their professional practice are exempted from obtaining a VARA license; provided they are authorized by a competent professional body to operate in the Emirates and maintain professional indemnity insurance.
c) Exempt Entities:
Exempt entities are not subject to specific VARA regulations provided they notify VARA, confirm their exempt status, obtain a no-objection confirmation from VARA before engaging in VA activities, and adhere to all applicable requirements. VARA has sole discretion in granting exempt status and confirmations.
d) Mandatory Registration for Large Proprietary Traders:
Entities in Dubai investing their own portfolios in Virtual Assets exceeding USD 250 million within a 30-day period must register with VARA in accordance with the registration procedure within three working days of reaching the threshold.
e) Voluntary Registration for Other Market Participants:
Entities such as technology service providers using Distributed Ledger Technology or those investing their own portfolios in Virtual Assets and wanting to obtain a commercial or free zone license in the Emirates may voluntarily register with VARA. This registration does not authorize VA activities or grant a license, and the entity must comply with applicable VARA regulations.
The process of obtaining a VARA license is completed through two stages, i.e., initial approval (Approval to Incorporate- ATI) and full VASP license application.
Submit an Initial Disclosure Questionnaire (IDQ) to Dubai Economy & Tourism (DET) or a relevant Free Zone (FZ). Provide additional documentation, including a business plan and details of beneficial owners and senior management. The next steps involve payment of initial fees and receiving approval from the legal corporation.
After receiving the Approval to Incorporate, documentation has to be submitted to VARA in accordance with the guidelines to obtain a VASP license. This is followed by receiving feedback from VARA and payment of remaining fees.
To know the complete procedure of the VASP license application and the comprehensive steps involved in the VARA licensing process, contact AMCA.
To succeed in this economy as a Virtual Asset Service Provider (VASP), it is essential to gain a trusted partner like AMCA to guide you through the process. AMCA is equipped with the expertise to streamline your compliance processes and mitigate risks. From Compliance Management System (CMS) to Customer Due Diligence (CDD), we guide you through every step of the process. Our team of professionals excels at meeting VARA’s stringent standards and licensing requirements.
Ready to simplify your VARA compliance journey?
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28 Jan 2025
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