Dubai’s Virtual Assets Regulatory Authority (VARA) has initiated its eagerly awaited licensing scheme for providers of virtual asset services (VASPs), marking the beginning of enhanced regulatory control over virtual asset operations within Dubai (with the exception of the Dubai International Financial Centre). This move enables entities aiming to conduct virtual asset services within or from Dubai to secure a comprehensive VASP license through the designated Dubai authorities, highlighting Dubai’s dedication to advancing consumer protection and combating financial crimes in the realm of virtual assets.
The VARA licensing scheme is all-encompassing, addressing a wide array of virtual asset services such as consultation, brokerage and dealer services, custody, exchanges, loans and borrowings, management and investment, alongside transfer and settlement services. Now, acquiring a VASP license is mandatory for any entity looking to partake in virtual asset services in Dubai.
This briefing aims to outline the pivotal elements of the VARA licensing scheme, including the application procedure and its prerequisites.
Overview of the VARA Licensing System
The VARA regulatory framework for licensing, building upon the Virtual Assets Law and the Marketing / Penalties Regulations introduced in 2022, now incorporates mandatory general and specific rulebooks. These rulebooks are designed to regulate and monitor the operations of VASPs effectively, ensuring consumer protection and the prevention of unlawful practices. The specific rulebooks add an extra layer of regulatory scrutiny, guaranteeing that each licensed virtual asset service adheres to tailored regulatory oversight.
Licensing Categories
Applicants for a VASP license are required to specify one or more types of virtual asset services they plan to provide, chosen from a list of seven categories:
- Virtual Asset Advisory Services
- Virtual Asset Broker-Dealer Services
- Virtual Asset Custody Services
- Virtual Asset Exchange Services
- Virtual Asset Lending and Borrowing Services
- Virtual Asset Management and Investment Services
- Virtual Asset Transfer and Settlement Services
Government entities in the UAE, along with their public, non-profit, and charitable organizations, are exempt from this licensing requirement but must inform VARA about their activities and obtain approvals when necessary. Furthermore, VARA allows exemptions under certain conditions for professionals such as lawyers, accountants, and certified business consultants who incidentally engage in virtual asset activities as part of their professional services.
Application and Renewal Process
Entities aiming to offer virtual asset services in or from Dubai must acquire a VASP license from either Dubai Economy and Tourism (DET) or any of Dubai’s Free Zone Authorities (excluding DIFC). This license is crucial for operating virtual asset services in Dubai.
A VASP license is valid for one year and requires annual renewal, which includes the payment of an annual supervision fee.
License Application Procedure
Initially, existing VASPs were to submit their applications by August 31, 2023. However, VARA extended this deadline to November 17, 2023, with potential regulatory implications for those missing the new deadline.
The application process for new VASPs comprises two stages:
Stage 1: Initial Approval
Submitting an Initial Disclosure Questionnaire (IDQ) to DET or a relevant FZA, alongside additional documents like a business plan and details on beneficial owners and senior management, and paying initial fees.
Upon receiving Initial Approval, the entity can proceed with legal incorporation and operational setup, although not yet authorized to provide VA services.
Stage 2: VASP License
Preparing and submitting required documents as per VARA guidelines, receiving feedback, and, if necessary, engaging in meetings and interviews.
Paying the application and first-year supervision fees and, upon approval, receiving a VASP license, potentially with operational conditions.
The duration for completing the VASP licensing application depends on the application’s complexity and the scope of proposed activities.
Upon license acquisition, firms must consistently meet general licensing conditions and adhere to evolving regulations, rules, and directives. Specific corporate governance and legal structure requirements for VASPs are detailed in the VARA Company Rulebook, dependent on the business operations conducted.
Practical Recommendations for Virtual Asset Service Providers
- Plan Ahead: Ensure ongoing compliance with VARA’s regulations, alongside license application and renewal duties.
- Detailed Documentation: Prepare and submit all necessary documentation diligently, as it is a critical aspect of the application process.
- Compliance Vigilance: Actively stay informed and comply with VARA’s dynamic regulations, rules, and directives.
The introduction of VARA’s licensing regime reflects Dubai’s ambition to position itself as a premier global financial center and a leader in the emerging Middle Eastern Fintech sector. The licensing framework aims to provide a clear, transparent foundation for the virtual asset market’s integrity in Dubai. As the market evolves, it’s vital for virtual asset service providers to stay alert and seek expert legal guidance to effectively navigate this new regulatory landscape.
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