Virtual Asset Regulatory Authority (VARA) has announced new Regulations for 2023

Introduction

The Virtual Asset Regulatory Authority (VARA) has recently announced the Virtual Assets and Regulated Activities Regulations 2023 (VARA Regulations/ new Regulations) that will be applicable to all entities conducting activities in connection with virtual assets in Dubai. The VARA Regulations have been issued in accordance with Law No (4) of 2022 Regulating Virtual Assets in the Emirate of Dubai which previously established VARA as the virtual asset regulator for Dubai. This is a welcome step toward creating a robust framework for the governance of virtual assets, cryptocurrency, and blockchain technology in Dubai. This will make Dubai a premier destination for activities in a very promising and upcoming space.

The main objectives of the law as stated by VARA are:

1. Increase awareness on investment in the Virtual Asset services and products sector, and encourage innovation in this sector
2. To contribute to attracting investments and encourage companies operating in the field of Virtual Assets to base their business in the Emirate;
3. To develop the regulations required for the protection of investors and dealers in Virtual Assets, and to endeavor to curb illegal practices in coordination with the concerned entities; and
4. To develop the regulations, rules and standards required for regulating, supervising, and overseeing Virtual Asset platforms, Virtual Asset Service Providers (VASPs), and all other matters related to Virtual Assets.

Important highlights under the new regulation are:

1. Classification of Virtual Assets and Licensing

Under the new Regulations, VARA has the power to classify virtual assets in terms of providing an opinion, providing clarification on any virtual asset, whether it can be prohibited, whether it will be regulated by the Central bank of UAE or how it will be treated from a regulatory perspective. VARA has also specified the list of prohibited virtual assets that cannot be traded in Dubai. These are mainly anonymity enhanced cryptocurrencies. Entities looking to carry out activities in Dubai, should necessarily obtain a license from VARA to be permitted to carry out each Virtual Asset Activity that it will conduct in the Emirate.

2. Mandatory Registration for Large Proprietary Traders

Any Entity in the Emirate that actively invests its own portfolio in Virtual Assets at or above USD 250 million or equivalent value of Virtual Assets during any rolling thirty [30] calendar days period, must register with VARA.

3. Activity Rule Books

The new law mandates that (VASPS) must comply with the Rule books issued by VARA, these rule books will correspond to the activities the VASPS are licensed to carry out. They may be amended from time to time by VARA

4. Anti Money Laundering

Under the new regulation VARA is designated as a Supervisory Authority for the Emirate in respect of all VASPs and Virtual Asset Activities. VARA will be responsible for regulation in relation to money laundering in the Emirate in respect of all VASPs and Virtual Asset Activities; and has the power to supervise compliance with relevant Federal AML-CFT Laws by VASPs in the Emirate.

5. Marketing and Promotion

All market participants regardless of whether they are licensed or not must comply with the regulations for marketing, advertising and promotions

6. Market Offences

VARA has stipulated what constitutes market related offences like insider trading, unlawful disclosure and market manipulation in the new Regulations and compliances to be carried out by entities to avoid malpractice.

7. Fines and Penalties

VARA has also stipulated the amount and nature of fines under these regulations. The penalties cover offences related to violations of AML/CFT and KYC norms, b. violations of rules in the Rulebooks published by VARA. The fines range from AED 20,000,000 for an individual and can go up to up to AED 50,000,000 or 15% annual revenue of any VASP; or 300% of the profits gained or losses avoided [if greater than the above values].