Since 2016, Dubai has been positioning itself as a virtual asset hub for the world and considers itself a progressive market. It is important to note that the United Arab Emirates consists of 7 emirates, each with its own emir. Therefore, the regulations discussed below are only applicable to Dubai.
Dubai has adopted the Financial Action Task Force’s (FATF’s) Recommendation 16 (Travel Rule) along with additional regulations and guidelines of its own. Moreover, as per Law No. [4] of 2022 Regulating Virtual Assets, it has set up its own authority - the Virtual Assets Regulatory Authority (VARA) - responsible for regulating virtual assets across Dubai, in the Emirate of Dubai. A virtual asset is defined as:
A digital representation of value that may be digitally traded, transferred or used as an exchange or payment tool, or for investment purposes. This includes Virtual Tokens, and any digital representation of any other value as determined by VARA. [Law No. (4) of 2022 Article (2)]
The Emirate has provided a comprehensive list of guidelines with the goals of remaining technology-agnostic, offering complete consumer protection, socio-economic stability, and furthering itself as a global crypto hub.
Download the Dubai Travel Rule Overview
What is the scope of the Travel Rule in Dubai?
As per Law No. (4) of 2022 Regulating Virtual Assets in the Emirate of Dubai, the regulation of virtual assets within the Emirate of Dubai will apply to all virtual asset services provided within the Emirate, including developing zones and free zones.
However, all activities in the Dubai International Financial Centre will not fall under Law No. (4).
The following activities require permits and fall under VARA’s supervision [Law No. (4) Article (16)].
“1. provision of Virtual Asset Platform operation and management services;
2. provision of services for the exchange between Virtual Assets and national or foreign currencies;
3. provision of services for the exchange between one or more forms of Virtual Assets;
4. provision of Virtual Asset transfer services;
5. provision of Virtual Asset safekeeping, management, or control services;
6. provision of services related to Virtual Asset Wallets; and
7. provision of services related to offering, and trading in, Virtual Tokens.”
Additionally, as per article 16, VARA has the authority to
classify and define the activities mentioned above, and define the regulations and rules required to govern them.
extend this list to include any activity, business, practice, or service related to virtual assets.
define all virtual asset activities, businesses, practices, services, and products prohibited in Dubai.
Who is the supervisory body for VASPs in Dubai?
Virtual Asset Regulatory Authority (VARA)
What is the Travel Rule threshold in Dubai (VARA)?
AED 3500 (Roughly EUR 1000)
What are VARA’s requirements for Travel Rule information to be exchanged?
For all transfers equivalent to or exceeding AED 3500, both the originator and beneficiary virtual asset service providers (VASPs) must obtain and hold the required originator and beneficiary information.
Required originator information:
originator’s name,
originator’s account number or wallet address,
originator’s residential or business address.
Required beneficiary information:
beneficiary’s name,
beneficiary's account number or wallet address.
VARA has the right to request to view this information at any time.
Before VASPs can transact with any counterparty VASP, irrespective of jurisdiction, a complete risk-based due diligence process is to be completed. This process need not be repeated for each transaction, only if a risk is identified.
VARA further requires that VASPs illustrate how they would comply with the Travel Rule when licensed. VASPs must submit all policies and controls related to the process to VARA. In addition, VASPs are to include a solution for dealing with the “sunrise issue”.
VASPs will be responsible for risk management; that is, they need to consider all risks associated with:
unhosted wallets (also known as self-hosted wallets) and other non-obliged entities,
all transactions, irrespective of being compliant with the Travel Rule,
anonymity-enhanced transactions, and
any transaction or series of transactions that try to circumvent the Travel Rule
When do you need to comply with the Travel Rule in Dubai?
Once the law has been published in Dubai’s Government Gazette, virtual asset businesses must comply immediately.
Which regulations are applicable to the Travel Rule in Dubai?
VASPs are to comply with 4 Compulsory Rulebooks as per VARA before they can be licensed to operate.
Moreover, VARA has developed Activity-specific Rulebooks to tackle the risks linked to the provision of each virtual asset activity. VASPs are only to comply with the activities associated with their offered service once licensed by VARA.
Payments & Remittances Services Rulebook
Additionally, ALL crypto businesses and crypto market participants are to adhere to VARA’s Marketing, Advertising and Promotions Regulations, whether or not they are licensed by VARA. Failure to do so will result in severe penalties.
What else do you need to know about the Travel Rule in Dubai?
Lastly, VASPs are to maintain VASP customer records for a minimum of 8 years. Ensure that clients’ virtual assets are separated from their virtual assets and hold clients’ virtual assets on a 1-to-1 basis.
