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VARA is the world’s first specialised regulator for the Virtual Assets sector. Established in March 2022, following the effect of Law No.4 of 2022 (‘VA Law’), VARA is responsible for licensing and regulating the VA sector in the Emirate of Dubai and its free zone territories excluding DIFC, and oversees all licensing requirements and applications for authorisation of VA activities under UAE law. It provides a full range of services in coordination with the Central Bank of the UAE and Securities and Commodities Authority, that includes cryptocurrencies, tokens, non-fungible tokens and any other virtual asset determined by VARA.
Entities operating in the Emirate of Dubai which fall within the scope of the VA Law shall be prohibited from engaging in certain regulated activities in Dubai unless authorised to do so by VARA and within the limits of the authorisation granted. Prerequisites include establishing Dubai as the business headquarters and obtaining a commercial business license from the relevant licensing authority in Dubai.
The term virtual assets (‘VA’) used in this article shall follow the definition from the VA Law, “a digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes”. Digital representation of fiat currencies is excluded from the sphere of VA.
The FMT Regulations sets out the rules for operating VASPs and include (i) Mandatory Rulebooks (Company Rulebook, Compliance and Risk Management Rulebook, Technology and Information Rulebook, and Market Conduct Rulebook); and (ii) Activity Specific Rulebooks (which cover seven licensed virtual asset activities, including advisory, broker-dealer, custodial, exchange, lending-borrowing, payments and remittance, and VA management and investment services).
VA Issuance is also a regulated activity, in which the FMT Regulations sets out the relevant rules inter alia the obligations of the issuer); additionally, it is notable that issuing privacy coins is not allowed.
VASPs offering services in the Emirate of Dubai prior to the issuance and publication of the FMP Regulations (including MVP -minimum viable product, operational license applicants, UAE based VASPs and new market entrants) are required to register with VARA and be fully compliant with the its rules, whereby any breach thereof will be subject to penalty(ies) and/or regulatory action(s). It is crucial to note here that registration does not constitute a VA license. If a registered entity aims to conduct any of the aforementioned VA activities, it shall require a license as referred to below.
We further note here that the licensing process by VARA consists of four stages which starts with a provisional permit, followed by a two-step MVP license (preparatory and operating), and then finally a full market product license (“FMT License”). Also, licensed entities VASPs are still required to comply with any applicable UAE Central Bank regulations in relation to VAs.
The objective of the regulations is to establish minimum compliance standards for VASPs whilst taking into consideration the specific risks of each VA activity.
It is important to note that VARA have the right to amend or modify these regulations at its own discretion, so as to be able to stay in line with emerging and evolving trends and rules in the global VA industry.
Our team at MIS Consultants shall assist you with any related queries.
Senior Associate
Mouannes International Services
Email: nadine@misconsultants.ae