The authority in charge of cryptocurrency regulations in Dubai, known as the Virtual Asset Regulatory Authority (VARA), is making significant strides in creating comprehensive rules for crypto service providers in the region.
Established in March 2022 to oversee and enhance Dubai’s Web3 ecosystem, VARA released detailed guidelines for virtual asset service providers (VASPs) in February 2023. These guidelines consist of four mandatory rulebooks, seven activity-specific rulebooks defining the operations of VASPs, and one rulebook for virtual asset issuance.
These regulations apply only to market participants within Dubai, excluding those operating under the Dubai International Financial Centre, a designated free trade zone. VASPs must obtain a license from VARA and adhere to the specified rulebooks.
The regulations cover a range of services, including
- Broker-dealer services
- Custody services
- Exchange services
- Lending and borrowing services
- Transfer and settlement services
- Virtual asset management and investment service
Firms that don’t fall into these categories can directly register with VARA. Entities actively investing in virtual assets and traders with capital exceeding $250 million must also register.
Both licensed and non-licensed providers must follow the rulebook, with violators facing fines between 20,000 to 200,000 dirhams ($5,500 to $55,000). Privacy coins are also prohibited under these regulations.
VARA’s Approach and Collaboration:
VARA adopts a consultative and collaborative approach, engaging with various stakeholders through roundtable discussions, feedback sessions, and collaborative workshops. The regulatory body believes in learning from industry participants and creating regulations that support growth.
Challenges and Global Best Practices:
Formulating regulations for a nascent industry like virtual assets is challenging. VARA analyzed existing frameworks and incorporated global best practices. The regulator aims to set a global precedent on how regulators and ecosystem stakeholders can work together.
Role of Special Development Zones (SDZs):
Establishing Special Development Zones (SDZs) played a vital role in VARA’s regulatory development. SDZs serve as incubators for innovation, bringing together virtual assets and traditional financial systems. This collaborative environment enhances regulators’ understanding and allows for tailored regulations that support innovation while maintaining oversight.
Expanding Focus on Crypto Niche Ecosystems:
VARA acknowledges the growth of niche ecosystems within the virtual asset sector, such as DeFi and the metaverse. The regulatory philosophy is to bridge the dynamism of these sectors with the resilience of blockchain and metaverse verticals. VARA aligns with Dubai’s Metaverse Strategy, aiming to support the growth and innovation of Web3 and metaverse ecosystems.
VARA’s Regulatory Success:
Dubai’s crypto regulatory framework, introduced in February 2023, positioned the city and the United Arab Emirates as a global crypto hub. VARA’s new regulatory regime has attracted numerous crypto firms to obtain operational licenses, making Dubai a favorable working environment. The framework received over 1,000 applications for registration, solidifying Dubai’s status in the global crypto regulatory landscape.
This information is not legal advice. Do your own research before making any decisions. Only invest what you can afford to lose and seek independent financial advice if needed. Understand the risks involved before purchasing any cryptoassets.