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Navigating the VARA Regulatory Regime: A Guide for Virtual Asset Service Providers in Dubai

As the world’s first authority solely dedicated to regulating virtual assets (VAs) and related activities, the Virtual Assets Regulatory Authority (VARA) has established a comprehensive framework to enable virtual asset service providers (VASPs) to operate within a robust and clear regulatory environment. This heralds a new era of regulatory oversight in the virtual asset industry.

Transitioning to VARA: The Dubai Legacy Program

For VASPs operating without a VARA license prior to February 2023, known as Legacy VA Operators, the Dubai Legacy Program facilitates a seamless transition into VARA’s jurisdiction. Successful applicants receive either a no-objection certificate or a 12-month Legacy Operating Permit (LOP). During the LOP phase, VASPs must fully comply with all licensing and supervision requirements.

Licensure for New Firms in Dubai

VASPs seeking to offer VA services or conduct VA activities in Dubai (excluding the Dubai International Financial Centre, DIFC) must apply for a regulatory license from VARA. This guide provides an overview of the application process for new firms, highlighting key aspects of the licensing framework.

Practical Tips for VARA Applicants

  1. Exercise Diligence in Document Submission: Stage 2 of the licensing process typically takes the longest, as it hinges on the quality and thoroughness of submitted documents.
  2. Ensure Compliance with Laws and Regulations: Conduct a thorough gap analysis of your policies and procedures to align with the requirements specified in VARA rulebooks.
  3. Plan Outsourcing Arrangements in Advance: If your business model involves outsourcing certain operations, have a detailed plan and begin acting on it as much as possible before obtaining the license.
  4. Be Proactive with Your Application: Stay organized, meet deadlines, and actively collaborate with your VARA licensing point-of-contact.

Licensing Categories

When applying for a VASP license, firms must specify one or more of the following virtual asset activities:

– VA Advisory Services

– VA Broker-Dealer Services

– VA Custody Services

– VA Exchange Services

– VA Lending and Borrowing Services

– VA Management and Investment Services

– VA Transfer and Settlement Services

UAE government entities, public non-profit and charitable organizations are exempt from licensing but must notify VARA of their activities and obtain non-objection confirmations. Additionally, professionals such as lawyers, accountants, and licensed business consultants may be exempt if they engage in virtual activities incidentally as part of their professional practice, subject to certain requirements.

Application and Renewal Process

Firms intending to provide virtual asset services in or from Dubai must obtain a VASP license from the Dubai Economy and Tourism (DET) or any Dubai Free Zone Authority (excluding DIFC). The VASP license is valid for one year and must be renewed annually, with the renewal process including the payment of an annual supervision fee.

Licensing Process

Applicants must submit their application and supporting documents through the relevant commercial licensor, either DET or any free zone in Dubai, excluding DIFC. The process involves two stages:

Stage 1 – Initial Approval (IA)

  1. Submit an initial disclosure questionnaire to the relevant commercial licensor.
  2. Provide additional documentation as required.
  3. Pay initial fees, typically 50% of the license application fee.
  4. Receive an IA to finalize the firm’s legal incorporation and complete operational setup. Firms are not permitted to conduct VA activities at this stage.

Stage 2 – VARA License (VASP License)

  1. Prepare and submit documentation as per VARA’s guidance received upon IA approval, including policies and procedures on:

   – Corporate structure and governance

   – Risk and compliance

   – Technology

   – Other documents as required by VARA on a case-by-case basis

  1. Receive feedback from VARA, which may include meetings, follow-ups, and additional requests.
  2. Pay the remaining portion of the application license fees and the first year’s supervision fees.
  3. Receive a VARA license, potentially subject to operational conditions.

By following these guidelines and understanding the VARA regulatory framework, VASPs can ensure a smooth licensing process and compliant operations within Dubai’s evolving virtual asset landscape.