How Does VARA Play an Important Role In International Crypto Regulation?

VARA and Crypto are the two main buzzwords spreading like wildfire across the Middle East. Dubai’s Virtual Assets Regulatory Authority (VARA) took the crypto world by storm after being one of the first regulatory authorities for regulating cryptocurrency-related activities. This regulatory authority, being one of its kind, enticed many virtual asset services providers from every corner of the world to explore the United Arab Emirates as a potential business hub to carry out activities related to digital assets. VARA's role is to establish a world-class regulatory environment that protects investors, ensures high levels of risk assurance, and promotes virtual asset innovation in Dubai. VARA is an important part of Dubai's digital economy, serving as a reliable regulatory authority for the virtual asset sector.

VARA and Crypto communities worldwide have developed a synergistic approach to create a favorable environment for the industry and the industry players. VARA aims to set a benchmark for international cryptocurrency regulation by developing a state-of-the-art regulatory framework for virtual asset businesses. VARA was formed in March 2022 to monitor and promote Dubai's Web3 ecosystem, and less than a year later, in February 2023, it issued extensive crypto regulatory standards for virtual asset service providers (VASPs).

The virtual asset standards contain four mandatory rulebooks, seven activity-specific rulebooks outlining the regulations for running VASPs, and one virtual asset issuance rulebook. These laws only apply to market players in Dubai, except those operating within the Dubai International Financial Centre, a recognized free zone for trade. VASPs must get a VARA license before delivering their services and meet all of the standards outlined in the rules above manuals.

The regulation covers seven licensed virtual asset activities (each a Virtual Asset Activity):

• Advisory services

• Broker-Dealer services

• Custody services

• Exchange services

• Lending and Borrowing services

• Payments and Remittances services

• Management and Investment services 

The regulations require both new and existing organizations to seek VARA clearance and a license before engaging in any virtual asset-related activity. The virtual asset ecosystem has expanded beyond tokens and crypto assets, and specialist ecosystems within the sector have thrived to create multibillion-dollar enterprises inside the virtual asset ecosystem, collectively known as Web3. Decentralized finance (DeFi), the metaverse, and nonfungible tokens (NFTs) are among the esoteric fields that have gained mainstream interest in recent years. This has paved the way for VARA to set a precedent for regulators worldwide to follow.

VARA's new regulatory environment has positioned Dubai and the United Arab Emirates as a worldwide cryptocurrency hub with attractive working circumstances. VARA and Crypto have indeed impacted the regulatory authorities worldwide by embracing and regulating the virtual asset industry. The VARA law provides much-needed stability and structure to an expanding, formerly uncontrolled sector. Businesses should carefully consider whether they come within the scope of the FMP Rules and take suitable action. The Dubai authorities are strengthening the vetting of cryptocurrency firms seeking a license to operate in the area. As a result, it is critical to appreciate the importance of following the VARA Regulations and keeping an eye out for changes. 

The UAE keeps proving its position as a leader in the digital economy and virtual assets, and we are seeing an increase in businesses looking to enter the UAE's virtual assets sector as a result of the predicted issuance of the VARA Regulations and the growing number of regulations governing virtual assets in the UAE (including financial free zones) in recent years. The Regulations are a world first, and they can set a standard for the sector and inspire other countries to enact similar laws and regulations.

If you or your organization wants to deal with virtual assets in the UAE, you must understand what rights and licenses may be required to avoid fines.