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Analysis of the virtual asset regulation authority in UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00

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VARA, Cryptocurrency, NFT, Virtual Assets,

Emirate of Dubai Law No. 4 of 2022 on the Regulation of Virtual Assets established the Dubai Virtual Assets Regulatory Authority ("VARA") ("VAL"). This groundbreaking law demonstrates Dubai's ambition to become one of the leading jurisdictions for entrepreneurs and investors in blockchain technology by establishing a legal framework for businesses dealing with virtual assets such as crypto assets and non-fungible tokens (NFTs).

The Dubai Virtual Asset Regulatory Authority (VARA), which is a linked agency of the Dubai World Trade Centre, will focus on virtual asset service providers' compliance and disclosures in the United Arab Emirates (UAE). The new organisation will also oversee the UAE's cryptocurrency licencing system.

These crypto licences are only available to firms having a commercial presence in the UAE. In addition to crypto exchanges, VARA monitors the activities of custodians and asset managers in the cryptocurrency area.

Before the conclusion of the first quarter, Dubai authorities were working on developing a virtual asset licencing scheme. According to rumours at the time, the construction was the result of a cooperation between Binance, the world's largest cryptocurrency exchange, and the Dubai World Trade Centre.

A virtual asset transaction at the Dubai International Finance Centre is not included in the scope of applicability of the Virtual Asset Liability Act (DIFC). The DIFC, a well-known free zone in the United Arab Emirates, is supervised by the Dubai Financial Services Authority, which has its own regulatory framework for virtual assets.

"Virtual asset" is defined as "a digital representation of value that can be traded, transferred, used as an exchange or payment tool, or for investment purposes," and "virtual token" is defined as a "digital representation of a group of rights that can be issued and traded digitally through a virtual asset platform," according to the Virtual Assets Law (VAL) (a platform operated by a virtual asset provider licenced by VARA).

VARA's key characteristics include 

VARA will have legal standing, as well as financial and administrative autonomy, as well as the legal authority to protect and regulate virtual asset service stakeholders. The Dubai World Trade Centre Authority will be associated with VARA.

VARA is in charge of regulating, controlling, and managing virtual asset and NFT issuance, offering, and associated disclosure activities.

Working with other government agencies, such as the UAE Central Bank, VARA will define a code of ethics, a general policy, and strategic objectives, as well as supervise the implementation of the UAE Virtual Assets Law. The Virtual Asset Regulatory Authority, on the other hand, will not regulate virtual asset services at the federal level. A violating entity may be subject to fines and sanctions, which may include the suspension of VARA's authorization for a period of six months if the violation is found.

Any natural person or legal organisation that provides virtual asset services must be licenced.

1. obtained a VARA licence,

2. based in the Emirate of Dubai

3. has a trading licence from the Emirate of Dubai's competent commercial authorities.

One of VARA's responsibilities is to monitor virtual asset trading activities in order to detect and prevent price manipulation, as well as to maintain high standards of personal data protection. VARA is expected to provide VAL implementation decisions, which will include a definition of associated activities, exempted virtual assets, licencing procedures and fees and charges, virtual asset custodians, digital wallets, tokenization and trading, and other related activities, in the near future.

Dubai's government has long embraced the use of cutting-edge technology to retain its status as a leading jurisdiction in the region and worldwide. To increase growth and development possibilities, the government has been effective in the early adoption of new technologies such as blockchain and artificial intelligence.

An MOU signed between the Securities and Commodities Authority ("SCA") and the Securities and Exchange Commission ("SEC") was announced in the fourth quarter of 2021. The Securities and Commodities Authority (SCA) is the UAE's federal securities and commodities regulator, and this MOU was signed between the SCA and the Dubai World Trade Centre Authority. The Dubai World Trade Centre ("DWTC") is planning to become the complete free zone and regulator for the whole spectrum of virtual assets, including crypto-related assets and NFTs, by the end of the year. Dubai's goal is to become a premier jurisdiction with a well-established framework for enterprises that provide, issue, list, and trade crypto assets.

The Emirate of Dubai has issued Law No. 4 of 2022 on the Regulation of Virtual Assets ("VA Law"), which applies to all free zones and special zones in Dubai, with the exception of the Dubai International Finance Centre, which has its own regulatory framework for virtual assets. Let's have a look at this historic legislation for individuals who want to understand the effects of the VA Law on Dubai's rapidly growing digital innovation sector.

Important Takeaways

Following its publication in the Official Legal Gazette of the Government of Dubai on March 11, 2022, the Act came into force. The Dubai Virtual Assets Regulatory Authority (VARA) will be established at the Dubai World Trade Center (DWTC). When the VARA is fully operational, it will be a legal entity with independent legal competence and a connection to the DWTC Authority.

According to the VA Law, a virtual asset, which includes Virtual Tokens and any other digital representation of value as determined by VARA (the "Virtual Asset"), is defined as a digital representation of value that can be digitally traded, transferred, used as an exchange or payment tool, or invested in.

Before engaging in Virtual Asset activity, any natural person or legal entity wishing to do so must first get a licence from the Virtual Asset Registration Authority (VARA).

The VARA's mission will be to govern virtual assets in the Emirate of Dubai, as well as to safeguard and regulate the players in this important industry.

The task will entail, among other things, coordinating with UAE federal agencies such as the Central Bank, issuing an ethics code, suspending and penalising Virtual Asset Service Providers, and issuing a code of ethics.

We anticipate that implementing rules will be released in due course; the legislation does not specify a specific time range, but the VA Law does provide the VARA with the authority to create further regulations without having to publish them in the Official Legal Gazette.

The VA Law is undoubtedly one-of-a-kind and a boost to Dubai's image as an early user of technologically innovative technologies.

The purpose of this article is to offer a broad overview of the topic. Regarding your individual situation, you should get professional guidance.

The Dubai Virtual Asset Regulation Law aims to provide a sophisticated regulatory framework that protects investors' interests and establishes worldwide standards for virtual asset sector governance, resulting in responsible company development. With the exception of the Dubai International Financial Centre, Article 3 says that the law's provisions should apply across the Emirate of Dubai, including special development zones and free zones (DIFC).

Through collaboration with the Central Bank of the UAE (CBUAE) and the Securities and Commodities Body, the Virtual Asset Regulatory Authority (VARA) is formed as a competent authority to monitor virtual asset services and promote regional and worldwide leadership in the sector (SCA). The authority's main responsibilities, according to Article 6, are to regulate, licence, and supervise virtual asset service providers and the issuance of virtual assets and tokens; to set the rules and controls for virtual asset activities; and to ensure the highest standards of protection for beneficiaries' personal data (DDA).

Article 15 specifies that any natural or legal entity wishing to participate in virtual asset operations must first get authorisation from VARA and then establish a commercial presence in Dubai. Furthermore, Article 16 outlines a number of activities that are subject to VARA's authorization, including operating and managing virtual asset platforms services; exchange services between virtual assets and national or foreign currencies; exchange services between one or more forms of virtual assets; virtual asset transfer services; virtual asset custody and management services; services related to the virtual asset portfolio; and services related to the o VARA has the jurisdiction to suspend permits for up to six months, rescind permits, or cooperate with the appropriate commercial licencing body in Dubai to terminate the breacher's business licence.

The legislation was announced on the same day as the US's Executive Order on Ensuring Responsible Development of Digital Assets, indicating the UAE's determination to obtain a head start and establish itself as a worldwide leader. We anticipate Dubai to become a virtual asset centre in the long term since the legislation has built a firm basis for all stakeholders to be protected and the virtual asset market to continue to expand steadily. The regulation will also let Binance and the Dubai World Trade Centre Authority (DWTCA) work together to develop a new international virtual asset ecosystem in Dubai, which is projected to promote long-term economic growth via digital innovation. In addition to Dubai, the SCA of the United Arab Emirates recently declared that the federal-level authority is nearing completion of the regulatory and supervisory framework for virtual assets produced for investment purposes. As a consequence, regulated exchanges and local competent authorities on the UAE mainland would be able to "apply for a licence for virtual assets exchange subject to the Authority's approval and compliance with all of the Authority's laws and procedures."

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