VARA’s Company Rulebook
Dubai has recently implemented the Financial Action Task Force's (FATF’s) Recommendation 16 (Travel Rule) and has tried to simplify compliance for crypto entities by creating Rulebooks such as VARA's Company Rulebook. This Rulebook is part of the Virtual Assets and Related Activities Regulations 2023 issued by Dubai's Virtual Assets Regulatory Authority (VARA). It applies to all virtual asset service providers (VASPs) in Dubai.
As explained in our previous blog, VARA has the authority to regulate all VASPs in the Emirate and was established as per Law No. [4] of 2022 Regulating Virtual Assets in the Emirate of Dubai. This article will provide an overview of VARA's Company Rulebook, which outlines a VASP’s obligations as a company per Dubai's crypto regulation.
The Rulebook has been divided into 8 sections dealing with almost every aspect conceivable, from a company’s structure to the segregation of duties and company behaviour to the nitty gritty of assets held. Below we will dissect Part VI of the Rulebook: Capital and Prudential Requirements.
If you want to learn about VARA's approach to the Travel Rule, see VARA’s Compliance and Risk Management Rulebook.
Please note that this summary is not intended to be legal advice and is provided for informational purposes only.
VARA’s Company Rulebook Part VI: Capital and Prudential Requirements
Paid-up Capital
Part VI of VARA’s guidelines explicitly states which values VASPs are to hold and maintain as paid-up capital as per their virtual asset activity and applies to all VASPs.
VARA has divided virtual asset activities into these 7 categories:
| Virtual Asset Activity | Paid-up Capital Investment |
|---|---|
| Advisory Services | AED 100 000. |
| Broker-Dealer Services | Between AED 400 000 - AED 600 000, depending on whether a VARA-licensed VASP is used to provide custody services, or 15 - 25% of the fixed annual overheads. |
| Custody Services | AED 600 000 or 25% of the fixed annual overheads. |
| Exchange Services | Paid-up capital investment: Between AED 800 000 - AED 1 500 000, depending on whether a VARA-licensed VASP is used to provide custody services, or 15 - 25% of the fixed annual overheads. |
| Lending and Borrowing Services | AED 500 000 or 25% of the fixed annual overheads. |
| Payments and Remittances Services | AED 500 000 or 25% of the fixed annual overheads. |
| Virtual Asset Management and Investment Services | Between AED 280 000 - AED 500 000, depending on whether a VARA-licensed VASP is used to provide custody services or 15 - 25% of the fixed annual overheads. |
VASPs can be licensed by VARA to carry out more than one service and will need to hold the paid-up capital amount specified for each service offered.
Additionally, this paid-up capital must be held and maintained in one of the following types of accounts.
A trust account with a licensed bank in the UAE with VARA listed as the beneficiary.
A surety bond provided by a surety company authorised to do business in the UAE, which shall have no expiration date and name VARA as a beneficiary,
Or any other method agreed upon when being licensed by VARA.
Net Liquid Assets
VASPs are to report their monthly net liquid assets to VARA. These assets are to be reconciled daily. Net liquid assets are to always be at least 1.2 times a VASP’s operating expenses. These assets may be kept as cash or the equivalent, or in stablecoins (referred to as a fiat-referenced virtual asset by VARA).
Insurance
Like the Market in Crypto Assets Regulation (MiCA), VARA mandates that VASPs be insured by a regulated insurer. Insurance must cover professional indemnity, commercial crime as well as any type of insurance appropriate to hot wallets. Moreover, during the licensing phase, VARA can request additional insurance based on the VASP’s activities.
Reserve Assets
Regarding all virtual asset activities, VASPs must keep reserve assets on hand that are equal to 100% of the assets owed to clients. Furthermore, they must store reserve assets in the same virtual asset (currency) owed to their clients. VASPs are to reconcile their reserve assets daily, and these amounts are to be audited once every 6 months. After that, the company must submit it to VARA in the following quarterly report.
Notifications and Other Requirements
If a VASP cannot maintain the aforementioned minimum levels of paid-up capital, net liquid assets, insurance, or reserve assets, it must immediately notify VARA. This notification must include information on all shortfalls, the reasons for the failure, the corrective actions that have been taken or will be taken to address the breach, and the anticipated timeframe for when those corrective actions will be finalised.
Until the VASP has corrected all failures and complies with all obligations, it must send daily updates to VARA regarding the shortfalls of its reserve assets. Regardless of any other requirements in the Compliance and Risk Management Rulebook, VASPs must set up and maintain precise procedures to monitor and identify all sources of risks or potential risks that could affect their operations. They must also consider the possible adverse effects of such risks on their level of paid-up capital, net liquid assets, insurance, or reserve assets.
Lastly, depending on the role of the VASP, VARA may request that the VASP hold additional assets based on its size, location, exposure or function of virtual asset activities.
Find out more about VARA; we have published a series on crypto regulations in Dubai and a Travel Rule regulation page.
