The Dubai government, by enacting Law No. 4 of 2022 , established the Virtual Assets Regulatory Authority (VARA), the world’s first standalone regulatory body dedicated exclusively to virtual assets. VARA was established as a full-fledged regulator with its own legal mandate, inspection powers, and rulebooks. While other governments across the world were debating the significance of such a body, the Dubai government proceeded to build this institution.
Jurisdiction of VARA
VARA’s territorial jurisdiction extends across all zones in the Emirate of Dubai, including Special Development Zones and free zones. An exception has been carved out for the Dubai International Financial Centre (DIFC) as it has its own regulator in the Dubai Financial Services Authority (DFSA). DIFC is given separate regulatory treatment as it is recognized as a distinct institutional investment body and digital securities market that warrants separate regulatory treatment.
Regulatory Framework
The Virtual Assets and Related Activities Regulations 2023 lay out the substance of the VARA’s framework as it defines the activities regulated by VARA and establishes licensing requirements across seven service categories like advisory, broker-dealer, custody, exchange, lending and borrowing, management and investment, virtual assets management and investment, and virtual assets transfer and settlement services. To govern the conduct of each of these activities, VARA has issued a dedicated rulebook governing the specific conduct obligations that specify capital requirements and operational standards for each activity.
Having a dedicated rulebook for each of the activities avoids subjecting the businesses to a one size fit all regulatory framework. Since advisory and custody activity pose different risks to consumers and market integrity, it is suitable for them to have different regulatory setup.
Enforcement Credibility
VARA operates under the authority of the Dubai government and is affiliated with the Dubai World Trade Centre (DWTC) Authority. Both institutions give VARA the necessary teeth to enforce its decision. VARA has on occasions imposed conditions, suspended operations and declined license applications to maintain its licensing standards. VARA may inspect and access records and documents of service providers and issue necessary violation reports, and may also take assistance of the police personnel where required.
Importance of VARA
VARA was established during an important time when Dubai was establishing itself as an important jurisdiction for virtual assets. Further, the UAE was removed from the FATF grey list in February 2024, which allowed the country banking access on terms comparable to other jurisdictions. This meant that VARA-licensed entities operated in a jurisdiction that is both well-regulated and banking-accessible.
VARA is one of the very few regulatory bodies in the world that has the virtual asset industry as its sole subject matter, which allows founders, fund managers and institutional investors to interact with VARA easily and understand its regulatory setup.
“This article is for information purposes only and does not constitute legal or professional advice”.
