In the fast-paced realm of digital finance and Virtual Assets (VA), where technology is innovation rapidly, VARA stands as a pioneering regulator in shaping the future regulatory landscape of virtual assets.
In this article, we’ll take a closer look at how Dubai’s Virtual Asset Regulatory Authority (VARA) is handling this rapidly evolving industry. By examining the regulations and requirements that govern the issuance of virtual assets in this region, we will provide insight into how VARA is addressing this issue.
The newly updated issuance rulebook has introduced a new definition for Fiat-Referenced Virtual Assets (FRVAs). According to the definition of VARA, FRVAs are virtual assets created to maintain a stable value relative to fiat currencies, but they do not hold legal tender status, these virtual assets are also commonly referred to as, Stablecoins. This definition helps to provide clarity and insight into the regulatory landscape.
AED Exclusion
FRVAs or stablecoins, cannot be tied (pegged) to the UAE Dirham (AED), as this falls under the exclusive jurisdiction of the Central Bank of the UAE (CBUAE). This restriction ensures a clear division of regulatory responsibilities.
Understanding the Fundamental Requirement
Business entities engaged in the issuance of virtual assets for commercial purposes are required to comply with VARA’s revised VA Issuance Rulebook. This essential requirement establishes the basis for managing and supervising virtual assets within the jurisdiction, ensuring that companies operating in this realm are held accountable to regulatory oversight. It also mandates adherence to transparency and consumer protection standards, safeguarding the interests of all stakeholders.
Categorizing Virtual Asset Issuances
One of the changes on the updated rulebook, provides a structured framework for virtual asset issuances, VARA has decided to classify them into two primary categories: Category 1 and Category 2. These categories are pivotal in determining the regulatory obligations that issuers must adhere to.
Category 1 VA Issuance:
Entities intending to conduct Category 1 VA issuances, including issuing FRVAs and other types specified by VARA, must comply with a set of mandatory rulebooks to obtain a license to operate in Dubai from the regulator. The rulebooks comprise the Company Rulebook, Compliance and Risk Management Rulebook, Technology and Information Rulebook, and Market Conduct Rulebook, covering various aspects of business operations and risk management. VARA has now clarified this setup to provide issuers with enhanced transparency and certainty.
Category 2 VA Issuance:
Category 2 entities, including Designated Non-Financial Businesses and Professions (DNFBPs), as well as entities that do not meet the criteria for Category 1 (not issuing FVRAs), are required to obtain prior approval from VARA before issuing a Virtual Asset in Dubai.
This approval process involves submitting comprehensive information about the virtual asset, such as its purpose, nature, economic value, and underlying substance. Additionally, entities must provide a detailed description of their team and business, along with an assessment of the associated risks related to the virtual asset issuance.
VARA may also impose specific rules and requirements tailored to the unique characteristics of the asset and the issuer.
Other Virtual Asset Issuances and Exempt Entities
All entities engaged in VA issuances, regardless of their category, are obliged to comply with the VA Issuance Rulebook.
In addition, the regulator has introduced the term “Exempt Entities” to the rulebook. These entities are allowed to distribute Permitted VAs without prior approval, if they satisfy specific criteria and comply with the regulations outlined in the rulebook. The determination of whether an entity qualifies for exempt status is at the discretion of VARA.
Conclusion
Dubai’s regulatory landscape governing virtual asset issuance aims to balance innovation, financial integrity, and consumer protection.
Now with clear requirements on how to issue FVRAs, it is crucial for VA Issuers to understand the categories, requirements, and exemptions for entities looking to issue virtual assets in this jurisdiction. As virtual assets continue to evolve, regulatory frameworks will adapt to the changing landscape of finance and technology.
