Dubai sets deadline for virtual asset operators seeking to be regulated under Vara

Operators must submit initial disclosure questionnaires to either the Department of Economy and Tourism or any free zone authority by April 30

Dubai has been making progress in its efforts to establish the emirate as the capital of the future economy. Bloomberg
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Dubai's Department of Economy and Tourism and the Dubai Free Zones Council will begin to accept applications from legacy virtual asset operators under their jurisdictions to become fully regulated under the emirate's Virtual Assets Regulatory Authority (Vara).

Operators that are carrying out virtual asset activities in the emirate, except for those in the Dubai International Financial Centre, are required to complete and submit initial disclosure questionnaires to their respective licensing authority — the DET or any free zone authority — by April 30, Vara said on Friday.

WHAT IS THE LICENSING PROCESS FOR VARA?

Vara will cater to three categories of companies in Dubai (except the DIFC):

Category A: Minimum viable product (MVP) applicants that are currently in the process of securing an MVP licence: This is a three-stage process starting with [1] a provisional permit, graduating to [2] preparatory licence and concluding with [3] operational licence. Applicants that are already in the MVP process will be advised by Vara to either continue within the MVP framework or be transitioned to the full market product licensing process.

Category B: Existing legacy virtual asset service providers prior to February 7, 2023, which are required to come under Vara supervision. All operating service proviers in Dubai (excluding the DIFC) fall under Vara’s supervision.

Category C: New applicants seeking a Vara licence or existing applicants adding new activities. All applicants that do not fall under Category A or B can begin the application process through their current or prospective commercial licensor — the DET or Free Zone Authority — or directly through Vara in the instance that they have yet to determine the commercial operating zone in Dubai. 

This is the first step towards the migration of the market to a regulated regime. Upon the receipt of an application acknowledgement notice, virtual asset service providers will begin the process to become regulated under Vara by August 31, it said.

Qualifying entities will receive initial approval, which they may use to complete their operational set-up, after which service providers will be able to submit a full market product licence application to Vara through the DET or any free zone authority, according to Vara's website.

In special cases, the application may be directly initiated with Vara until the preferred commercial licensor is identified, it said.

Operators can apply for seven types of regulated virtual asset activity licences, which include advisory services, broker-dealer services, custody services, exchange services, lending and borrowing services, transfer and settlement services, and management and investment services.

Cabinet Resolution No 111 of 2022, concerning the regulation of virtual assets and their service providers, came into effect on January 15 and requires all companies operating in or seeking to operate in this sector in or from Dubai to be licensed by Vara.

Dubai has been making progress in its efforts to establish the emirate as the capital of the future economy.

The pillars are emerging technology such as the metaverse, artificial intelligence, Web3 and blockchain, DET director general Helal Almarri said.

“The virtual assets sector that spans all these pillars is integral to the strategy presenting a dynamically evolving ecosystem that fuels all aspects of sustainable economic growth,” he said.

“Ensuring that our marketplace is secure, participants are responsible and investors and consumers are effectively protected is our top priority.

“With key stakeholders responsible for commercial licensing across the emirate working closely to deploy Vara's full market regulatory construct, we aim to set a benchmark that positions Dubai as a global role model for virtual asset sector development.”

Vara was established by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, in March 2022 under the Dubai Virtual Asset Regulation Law, the first law in the emirate that regulates virtual assets.

The body aims to create an advanced legal framework to protect investors and provide international standards for virtual asset industry governance to enable responsible business growth in the emirate.

“Adopting the new regulations provides a safe and sustainable operating environment for virtual asset companies and further establishes Dubai as a credible destination for this sector,” said DFZC secretary general Mohammed Al Zarooni.

Ensuring that our marketplace is secure, participants are responsible and investors and consumers are effectively protected is our top priority
Helal Almarri, director general of Dubai's Department of Economy and Tourism

It is also in line with Dubai's D33 economic agenda, which was launched in January to double the size of Dubai’s economy, with a target of reaching Dh32 trillion ($8.71 trillion) by 2033 and establishing the emirate among the top three global cities.

In February, Vara — the first regulator to have a presence in the metaverse — issued regulations to offer certainty and greater clarity on the expected level of operator responsibility, and also mitigate market risks.

The Virtual Assets and Related Activities Regulations 2023 mandates “gold-standard risk assurance” and anti-money laundering standards to be applied by licensed businesses within the emirate, it said.

The regulatory framework is focused on the risks that each virtual asset activity presents to the market and seeks to offer service providers a clear framework of rules which apply to their operations and business models, Vara said.

Its introduction also gives existing companies “a clear timeline to ensure that they submit their initial disclosures by the end of April”, said Henson Orser, chief executive of Vara.

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WHAT IS THE LICENSING PROCESS FOR VARA?

Vara will cater to three categories of companies in Dubai (except the DIFC):

Category A: Minimum viable product (MVP) applicants that are currently in the process of securing an MVP licence: This is a three-stage process starting with [1] a provisional permit, graduating to [2] preparatory licence and concluding with [3] operational licence. Applicants that are already in the MVP process will be advised by Vara to either continue within the MVP framework or be transitioned to the full market product licensing process.

Category B: Existing legacy virtual asset service providers prior to February 7, 2023, which are required to come under Vara supervision. All operating service proviers in Dubai (excluding the DIFC) fall under Vara’s supervision.

Category C: New applicants seeking a Vara licence or existing applicants adding new activities. All applicants that do not fall under Category A or B can begin the application process through their current or prospective commercial licensor — the DET or Free Zone Authority — or directly through Vara in the instance that they have yet to determine the commercial operating zone in Dubai.