The Dubai Virtual Assets Regulatory Authority (VARA) has officially launched its highly anticipated licensing framework for virtual asset service providers (VASPs), ushering in a new era of regulatory oversight for virtual asset activities within the Emirate of Dubai (excluding the Dubai International Financial Centre) (Dubai). Firms planning to provide virtual asset activities in or from Dubai are now able to obtain a full VASP license from the relevant Dubai authorities (discussed below). This development underscores Dubai’s commitment to fostering consumer protection and preventing illicit finance in the virtual asset space.
The VARA licensing framework is comprehensive and covers a broad range of virtual asset activities, including advisory services, broker-dealer services, custody services, exchange services, lending and borrowing services, management and investment services, and transfer and settlement services. Obtaining a VASP license is now a prerequisite for any firm seeking to engage in virtual asset activities within Dubai.
This client alert will provide a high level overview of the key features of the VARA licensing framework, together with the application process and requirements.
VARA Licensing Framework
In addition to the Virtual Assets Law and the Marketing / Penalties Regulations issued in 2022, the VARA licensing regulatory framework has been updated to include a series of general compulsory rulebooks and activity-specific rulebooks aimed at comprehensively regulating and supervising the activities conducted by VASPS, together with ensuring consumer protection and preventing illicit activities / practices. The activity-specific rulebooks provide an additional layer of oversight, ensuring that each licensed virtual asset activity is subject to appropriate regulatory supervision tailored to such activity.
When applying for a VASP license, applicants must explicitly identify one or more virtual asset activities they intend to offer from a list of seven categories:
- 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 and their public, non-profit and charitable organizations are exempt from the licensing requirement but must notify VARA of their activities and obtain non-objection confirmations. Moreover, VARA acknowledges (subject to certain requirements) exemptions for professionals such as lawyers, accountants, and licensed business consultants who incidentally engage in virtual activities as part of their professional practice.
Application / Renewal
Firms intending to provide virtual asset services in or from Dubai must obtain a VASP license from Dubai Economy and Tourism (DET) or from any Dubai Free Zone Authority (FZA) in the Dubai (excluding the DIFC). This license is mandatory and a prerequisite for conducting virtual asset services in Dubai.
Once obtained, a VASP license is valid for a period of one year and must be renewed annually. The application and renewal process includes the payment of an annual supervision fee.
License Application Process
Existing VASPs in Dubai were initially required to submit their VASP license applications by the now-past deadline of August 31, 2023. However, VARA has extended this deadline to November 17, 2023. Failure by Existing VASPs to submit their applications before this new deadline may trigger regulatory enforcement consequences from VARA.
New VASPs follow a two-stage application process:
Stage 1: Initial Approval
- Submission of an Initial Disclosure Questionnaire (IDQ) to DET or a relevant FZA.
- Providing additional documentation, including a business plan and details of beneficial owners and senior management.
- Payment of initial fees.
- Receipt of Initial Approval to finalize legal incorporation and complete operational setup.
It’s important to note that after receiving Initial Approval, the VASP is not yet authorized to provide VA services. They must proceed to Stage 2 of the application process.
Stage 2: VASP License
- Preparing and submitting documentation as per VARA’s guidance.
- Receiving feedback directly from VARA and potentially participating in meetings and interviews.
- Paying the remaining portion of application fees and first-year supervision fees.
- Receiving a VASP license, possibly subject to operational conditions.
The timelines for completion of the VASP licensing application process would be determined by the complexity of the relevant application and the scope of proposed activities.
Upon obtaining a VASP license, firms are required to continuously meet general licensing conditions and comply with all relevant Regulations, Rules, and Directives that may evolve over time. The specific corporate governance and legal structure requirements for VASPs are set out in the VARA Company Rulebook and will depend on the business operations conducted.
Practical Tips for Virtual Asset Service Providers
- Plan Ahead: VASPs must ensure continued adherence to the VARA rules and regulations together with their license application and annual renewal obligations.
- Detailed Documentation: New VASPs should meticulously prepare and submit all required documentation, as this is a crucial part of the application process.
- Compliance Vigilance: VASPs should be proactive in understanding and complying with the ever-evolving regulations, rules, and directives from VARA.
The launch of VARA’s licensing regime is a continuation of Dubai’s ongoing efforts to establish itself as a leading global financial hub and its determination to remain at the forefront of the emerging Middle East Fintech market.
The VARA licensing framework is intended to provide clarity, transparency, and a foundation for ensuring the integrity of the virtual asset market in Dubai. As the market continues to evolve, it is crucial for virtual asset service providers to remain vigilant and seek legal advice to navigate the new landscape effectively.