Blockchain regulations around the world have always been catching up with the innovative Blockchain technology whose use cases have sky rocketed in the past few years. In this post, we analyse how Dubai's indepedent Blockchain Regulator - VARA is shaping up to be most relevant in this ecosytem.
VARA's regulations are based on a risk-based approach, which means that different types of VAs will be subject to different levels of regulation. This approach is designed to ensure that the most risky VAs are subject to the most stringent regulations, while the least risky VAs are subject to less regulation.
In Dubai, the Virtual Assets Regulatory Authority (VARA) was established in March 2022 to regulate all activities related to the virtual assets sector throughout the Emirate, including special development zones and free zones. VARA is an independent regulator for virtual assets, and regulated virtual assets include cryptocurrencies such as Bitcoin and non-fungible tokens (NFTs).
Dubai’s Virtual Assets Regulatory Authority (VARA), has issued its Virtual Assets and Related Activities Regulations 2023. The Regulations set out a comprehensive Virtual Asset (VA) Framework built on principles of economic sustainability and cross-border financial security.
VARA's Regulatory Objectives:
To position Dubai as a regional and international hub for Virtual Assets and related services and to develop a digital economy in the city to boost its competitive edge locally and internationally.
To empower investors and increase awareness about Virtual Asset services and products and encourage innovation to promote real opportunity.
To promote the new world of Virtual Assets and attract investments and businesses to set up their base in the Emirate of Dubai.
To promote a shared responsibility in developing efficient and bespoke regulations for the protection of investors and to curb illegal practices in coordination with the concerned entities.
To develop the regulations, rules and standards required for regulating, supervising and overseeing Virtual Asset Platforms, Virtual Asset Service Providers and all other matters related to Virtual Assets.
The regulations cover seven licensed virtual asset activities, including:
Lending and Borrowing Services
Payments and Remittances Services
Management & Investment Services
VARA has released a number of rulebooks, including:
VARA Regulations and Compulsory Rulebooks-
What are the penalties for non-compliance with VARA regulations:
The Dubai Virtual Asset Regulatory Authority (VARA) has the authority to take actions and impose penalties for violations of the Marketing Regulation. In case of breaches, VARA can issue a cease and desist order and impose fines starting at AED 50,000, with higher penalties for repeat offenders. VARA may also suspend or revoke licenses, restrict activities, and require approval or licensing for entities in violation. Businesses must obtain VARA approval or a no-objection letter to offer regulated virtual asset services in Dubai. Non-compliance with VARA regulations can result in civil monetary penalties ranging from USD 5,000 to USD 1 million per day of violation. State privacy laws may also impose fines for non-compliance, with the CCPA providing fines of up to USD 2,500 per violation or USD 7,500 per intentional violation, without a cap on the total fines.
How do VARA regulations compare to other global cryptocurrency regulations:
Dubai's VARA regulations for virtual assets are unique and tailored to the Emirate of Dubai. Here are some ways in which they compare to other global cryptocurrency regulations:
Prohibit the issuance of anonymity-enhanced cryptocurrencies and all virtual asset activities related to them.
Cover seven licensed virtual asset activities, including advisory, broker-dealer, custody, exchange, lending and borrowing, payments and remittance, and virtual assets management and investment services.
Require businesses to obtain a license from VARA prior to carrying on any virtual asset activity in Dubai.
Impose fines starting at AED 50,000 for non-compliance with regulations.
Allow VARA to take enforcement measures such as suspension or revocation of license or registration, suspension or restriction of activities, and/or requirement to obtain VARA approval and/or license.
Other global cryptocurrency regulations:
The United States has a patchwork of state and federal regulations that vary by jurisdiction.
Singapore's Monetary Authority is contemplating tightened access to cryptocurrencies for retail clients.
The European Union has proposed a comprehensive regulatory framework for cryptocurrencies.
In conclusion, VARA's new regulations for virtual assets in Dubai are a step in the right direction towards regulating this sector. The regulations provide clarity on permissible activities and services related to virtual assets while prohibiting illegal activities such as issuing anonymity-enhanced cryptocurrencies. This will help mitigate risks associated with this sector while facilitating cross-border operations and innovation to enable safe market adoption and growth.
VARA's regulations are a positive step for the VA industry in Dubai. The regulations are comprehensive and forward-thinking, and they are expected to help the emirate become a leading global hub for VA activity.