Legalities around digital assets in the UAE: A look at VARA, the world’s first independent regulator for virtual assets

• VARA is the world’s first independent regulator for virtual assets and was established in March 2022 under the Dubai Virtual Asset Regulation Law.
• Firms wishing to engage in virtual asset activities in the emirate must obtain a VASP license.
• The authority’s vision is to establish Dubai as an international hub for virtual assets and contribute to a $140 billion digital economy by 2031.

The dynamic digital assets industry necessitates robust governance and regulatory frameworks to foster sustainable growth and guarantee investor protection. In the UAE, the Virtual Assets Regulatory Authority (VARA) is the entity that plays a crucial role in shaping the regulatory environment for virtual assets.

As the world’s first independent regulator for virtual assets, VARA stands as a transparent and reliable authority in this evolving sector. With a vision to globalise its mission, VARA is focused on creating a replicable framework to effectively regulate the industry.

When was VARA established?

VARA was established in March 2022 under the Dubai Virtual Asset Regulation Law to make the Emirate of Dubai a global hub for virtual assets and related services. This move seeks to foster a digital economy that bolsters the city’s competitive edge — both locally and internationally.

VARA was launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. The first of its kind in the emirate, this law provides a comprehensive legal framework to regulate virtual assets, including cryptocurrencies like Bitcoin and non-fungible tokens (NFTs). VARA’s jurisdiction encompasses the entire emirate, covering special development zones and free zones, excluding the Dubai International Financial Centre (DIFC).

Today, we approved the virtual assets law and established the Dubai Virtual Assets Regulatory Authority. A step that establishes the UAE’s position in this sector. The Authority will cooperate with all related entities to ensure maximum transparency and security for investors. pic.twitter.com/LuNtuIW8FM

— HH Sheikh Mohammed (@HHShkMohd) March 9, 2022

The objectives and corresponding frameworks

Since its inception, VARA’s major goal has been to provide a sophisticated legal framework that protects investors while also aligning with worldwide norms for virtual asset market governance. This framework promotes responsible corporate growth and seeks to combat illicit actions through effective and tailored laws created in collaboration with relevant institutions. VARA’s objective includes raising knowledge regarding virtual asset services and products, stimulating innovation, and fostering a sense of shared responsibility among stakeholders to maintain a safe and transparent market environment.

VARA introduced the Virtual Assets and Related Activities Regulations in 2023, which are based on sustainable economic growth and cross-border financial security principles. These laws seek to provide regulatory certainty by outlining the required degree of operator accountability and assuring adherence to gold-standard risk assurance and anti-money laundering (AML) requirements. VARA’s framework addresses global concerns such as money laundering and terrorist funding, ensuring that the potential exploitation of emerging technology is effectively reduced.

Vision, strategic goals, and transparency

VARA’s vision to establish Dubai as a regional and international hub for virtual assets aligns with the broader governmental goal of developing a robust digital economy, projected to grow to more than $140 billion by 2031. By creating a regulatory framework that is easy to replicate, VARA aims to extend its mission globally, positioning Dubai at the forefront of digital transformation and innovation.

The authority’s approach is built around investor protection and increased market transparency. By establishing new standards for regulatory security and investor protection, it seeks to strengthen Dubai’s position as a worldwide hub for emerging technology. VARA’s good governance standards guarantee that the virtual asset business functions under a framework that promotes long-term growth and inspires trust in investors and stakeholders.

How can firms get licensed?

Firms from the UAE and abroad that adhere to VARA’s guidelines can apply for the Virtual Asset Service Provider (VASP) License. It is a legal requirement for any entity wishing to engage in virtual asset activities within or from Dubai (again, excluding the DIFC) to obtain this licence before commencing operations. 

Applications can be submitted through Dubai Economy and Tourism (DET) for mainland firms or any of Dubai’s Free Zones, excluding the DIFC. For more information, prospective applicants are encouraged to visit the relevant sections on the DET and Free Zones websites.