April 30: Why Dubai’s deadline for crypto businesses to come under VARA is important
Dubai: Businesses in Dubai interested in cryptocurrencies in any shape or form have one important deadline to meet – April 30.
By that date, these businesses will have to fill in “Initial Disclosure Questionnaires” and submit to the Dubai regulator VARA. It is the first step towards Dubai having a full regulatory regime for any activity related to the trading of virtual assets.
And by extension, protect the rights of investors who trade these crypto-assets, with crypto-companies having to provide full/greater transparency about their operations. What it does is reduce the risk of an FTX-type blowout that has plagued crypto-asset trading.
Who needs to submit IDQ
VARA – which is the Virtual Assets Regulatory Authority in Dubai – offers seven types of regulated licenses for virtual assets.
These include advice, broker-dealer services, custody, exchange, lending and borrowing, transfer and settlement, and management and investment services. Any entity based in Dubai offering any or all of these services must register with VARA.
“Voluntary registration is popular as it covers a growing number of cryptocurrency businesses,” said Bal Krishen, chairman and CEO of Dubai-based Century Financial. Especially those with innovative business models that may not fit into traditional categories of financial services recognized by regulators.
“These businesses seek voluntary registration and want to benefit from oversight by a recognized regulator. This reassures investors and counterparties that the company they are dealing with is subject to regulation and oversight by well-known specialist virtual asset regulators.”
What next after IDQ?
Further consolidation of the virtual licensing regime in Dubai is the obvious next step. Once the IDQs are submitted, entities that qualify for the “Full Market Product” (FMP) license will begin the transition to being a VARA-regulated business by August 31.
“VARA has been working closely with both DET (Department of Economy & Tourism) and the emirate’s free zone authorities to ensure a smooth transition for legacy Virtual Assets Service Providers (VASPs) in Dubai,” said Henson Orser, CEO of VARA.
“This transition was further supported by VARA’s Minimum Viable Product (MVP) program, a time-bound initiative that allowed new applicants to set up operations and become market-ready until the official release of our full regulations on February 7, 2023.
“The introduction of the Virtual Assets and Related Activities Regulation provides the existing companies with a clear timeline to ensure they submit their first disclosures by the end of April.”
Crypto comes under tighter rules
Recently, the European Union Parliament pushed for a decisive vote on laws to govern activities in the crypto space, and these are likely to come into effect sometime next year. At some point, the US will also have laws in place that govern crypto – and at the same time make it more mainstream.
In terms of government oversight, Dubai and Abu Dhabi have early mover advantages in the crypto space. Bahrain is the second Gulf jurisdiction to make progress.
Extending this authority and oversight is what Dubai and VARA are doing through the April 30 deadline for IDQ submissions. “Ensuring our marketplace is safe, participants are accountable and investors and consumers are effectively protected is our top priority,” Helal Saeed Almarri, director general of Dubai’s Department of Economy and Tourism, said in a recent statement.
“With key stakeholders responsible for commercial licensing across the Emirate working closely to implement VARA’s market-wide regulatory construct, we aim to set a benchmark that positions Dubai as a global role model for the development of the VA sector.”
License fees for crypto businesses
For Dubai-based crypto service businesses, the license fee is Dh40,000 to provide advisory and payment services as well as remittance services individually. For the remaining services, it is Dh100,000 for each activity/service. (These fees do not include the annual supervision fee.)
How are investors protected?
The VARA directive involves monitoring trading activity in virtual asset services to prevent price manipulation and create high standards for the protection of personal data, Krishen said. “The regulation applies to all virtual asset service providers (VASPs) offering services in Dubai (excluding DIFC).”
The regulation also covers large proprietary traders and voluntary registration for other market participants. (Large proprietary traders are specified as entities that invest in their own virtual asset portfolio at or above $250 million during a rolling 30 calendar day period.)
According to industry sources, Dubai and the UAE would be better off having a complete or near-complete set of rules to govern crypto businesses. Bitcoin and its ilk may have had a terrible 2022, but that doesn’t seem to be eroding retail investors’ interest in these alt-assets. If anything, the rise in value since the turn of the year may have even cemented it.
That, in turn, will mean more protection for individuals or businesses taking exposures in crypto. This is what the VARA movements with IDQ will trigger.
“Cryptocurrency investors had to use banks or other third-party providers outside the UAE to fund their trades while incurring high exchange rates and fees, longer lead times and being subject to holding assets in overseas jurisdictions,” Krishen said. “The tide is now turning, given the UAE’s proactive approach to establishing a cryptocurrency framework, blockchain technology and a supportive regulatory environment to grow the digital asset market.
“As a result, various cryptocurrency exchanges have set up operations in the UAE, catering to the needs of local investors. Binances is an example of such an exchange, which has obtained crypto custody and VARA licenses.”
