Dubai VARA Virtual Assets Framework Dubai's Virtual Assets Regulatory Authority (VARA) provides comprehensive regulation for virtual asset service providers operating in Dubai outside of DIFC, covering licensing, conduct, and prudential requirements.
Effective May 2023
Source: Virtual Assets Regulatory Authority (VARA)

What Is VARA?

The Virtual Assets Regulatory Authority (VARA) is Dubai's dedicated regulator for virtual asset activities outside the Dubai International Financial Centre (DIFC). Established under Law No. 4 of 2022, VARA provides a comprehensive framework for licensing and supervising virtual asset service providers.

VARA represents Dubai's ambition to become a global hub for virtual assets while maintaining robust regulatory standards and consumer protection.

What Is VARA's Regulatory Scope?

Geographic Jurisdiction

  • Dubai emirate excluding DIFC (which has DFSA oversight)
  • Applies to entities operating from or marketing into Dubai
  • Foreign VASPs serving Dubai residents need authorization
  • Coordination with federal regulators on cross-emirate matters

Entity Types

  • Virtual Asset Service Providers (VASPs)
  • Virtual Asset exchanges and trading platforms
  • Custody and wallet providers
  • Advisory and management services

What Are VARA's Licensing Requirements?

License Categories

  • Advisory Services License
  • Broker-Dealer License
  • Custody Services License
  • Exchange Services License
  • Lending and Borrowing Services License
  • Management and Investment Services License
  • Transfer and Settlement Services License

Application Requirements

  • Detailed business plan and operational model
  • Fit and proper assessment for key personnel
  • Capital adequacy and financial resources
  • Technology and cybersecurity standards
  • AML/CFT compliance framework
  • Consumer protection measures

Ongoing Obligations

  • Regular reporting to VARA
  • Annual audits and compliance reviews
  • Notification of material changes
  • Maintenance of required capital levels

What Activities Does VARA Regulate?

Core Activities

  • Exchange of virtual assets for fiat or other virtual assets
  • Transfer of virtual assets
  • Safekeeping, custody, and administration
  • Participation in financial services related to virtual assets

Prohibited Activities

  • Operating without appropriate license
  • Misleading marketing or advertising
  • Market manipulation and insider trading
  • Offering privacy coins without approval

How Does VARA Treat Stablecoins?

Regulatory Treatment

  • Stablecoins classified as virtual assets under VARA framework
  • Issuance may require specific authorization
  • Trading and custody subject to standard VASP requirements
  • Coordination with CBUAE for payment-focused stablecoins

Key Considerations

  • CBUAE has primary authority over payment tokens used for money transmission
  • VARA regulates stablecoins used as investment or trading instruments
  • Dual licensing may be required depending on use case
  • Reserve and backing requirements follow CBUAE standards for payment tokens

What Should Financial Institutions Consider?

  • VARA offers comprehensive licensing for Dubai virtual asset operations
  • Distinguish between VARA (Dubai), DFSA (DIFC), and CBUAE (payment tokens) jurisdiction
  • Dubai's regulatory environment is sophisticated but complex
  • Local presence and substance requirements apply
  • Strong AML/CFT compliance expectations
  • Coordination with CBUAE essential for stablecoin activities

The Coinbax Perspective

VARA represents Dubai's serious commitment to becoming a regulated virtual assets hub. The framework is comprehensive and relatively mature compared to many jurisdictions, but navigating the multi-regulator UAE landscape requires careful planning.

For stablecoin activities specifically, the key is understanding the VARA/CBUAE boundary. Investment-focused activities fall under VARA, while payment-focused activities require CBUAE authorization. Many stablecoin use cases may span both, requiring coordination across regulators.

The Dubai market offers significant opportunity for compliant operators, but the regulatory complexity—with five different competent authorities across the UAE—demands expert local guidance.

Frequently Asked Questions

What's the difference between VARA and DFSA?

VARA regulates virtual assets in Dubai outside of the DIFC free zone. DFSA regulates financial services within the DIFC, including crypto tokens classified as securities or derivatives. The geographic distinction is critical for licensing.

Do I need a VARA license for stablecoin activities?

It depends on the activity. Trading, custody, or investment-related stablecoin activities likely require VARA licensing. Payment and remittance activities using stablecoins require CBUAE authorization. Some activities may require both.

Can foreign companies obtain VARA licenses?

Yes, but VARA requires local substance in Dubai. Foreign entities typically establish a local subsidiary or branch with appropriate personnel and infrastructure in Dubai.