Dubai Seeks to be Virtual Assets Hub Globally After Airing VARA

  • The VARA of Dubai released a regulatory framework to govern virtual assets and virtual assets service providers. 
  • It’s framework consists of 5 fundamental principles and goals, including, Consumer protection.
  • Hong Kong is about to introduce its first framework on Virtual Assets by mid of 2023. 

In February, the Dubai Virtual Assets Regulatory Authority (VARA) introduced the world’s first comprehensive framework. Regulating Virtual Assets and Virtual Assets Service Providers (VASP). 

These rules serve as a standard for Hong Kong. Other dominions are to introduce their rules and regulations for VASPs in the coming period. 

According to a press release, these regulations set out the regulatory framework governing virtual assets. All UAE-related activities, including VARA’s general, supervisory, and enforcement powers. At its sole and absolute discretion, it may modify these Terms from time-to-time to address emerging risks. Continually evolving developments in the global virtual assets sector.

Dubai VARA as a Global Virtual Assets hub 

As the first mover, Dubai has done “the heavy lifting” for other jurisdictions, said Christy Swartz, partner at DLA Piper. Giving it an advantage in the race to become a global virtual asset hub.

She also told Finance Asia, the regulatory framework of VARA. It wanted the law to be portable – to set a minimum viable product. That other governments could look at and use to determine what the minimum standards are for virtual assets.

As per the report, DLA Piper cooperated with the group of industry. Legal experts who gave ideas to VARA in formulating the framework followed by industry discussion.

Swartz also told Financial Asia that disclosing the world’s first framework on February 7, 2023. It’s heart-wrenching and compares it to doing your homework to classify the world. She added, “ We’re very proud of what we ended up with.”

The VARA’s Framework consists of 5 fundamental principles and goals:

  1. Market Integrity and Stability: VARA wants the market to be fair, orderly transparent and prevent fraud and other criminal activity. Markets should be systematically hedged because of prudential risks. Markets can be volatile while still being considered fair and orderly. Governance should be fully FATF compliant.
  1. Consumer Protection: AS per VARA, Governance should do their best to prevent harm from misinformation, misuse, or poor operating practices. Market participants are free to assume the risk if they have given “informed consent” regarding their investments and the VASP has provided them with all information necessary for such consent following all applicable laws and regulations.”
  1. Technology neutrality and support of innovation: As noted in the VARA framework, governance should not discriminate against technology but guard against illegal or harmful activities. If an activity is not illegal, it should be possible and desirable to regulate it without completely banning it.
  1. Regulatory resilience: Reportedly, given the fast-paced nature of the industry, the regime with loopholes should not quickly become outdated. Governance is principle-driven, and VARA takes care of instructional carve-outs.
  1. Regulatory efficiency and proportionality: VARA seeks to implement an efficient regime that achieves policy intent but in the least burdensome manner possible for both VARA and VASP. “Any burden imposed is reasonable relative to the potential harm being mitigated.”

According to the reports, Hong Kong will introduce its first framework on Virtual Assets in June this year, focused on their exchange.

The Special Administrative Region (SAR) addresses an important consideration. Whether VAs should come under the purview of the Securities and Exchange Commission (SFC). This would mean they are securities, but it is unclear whether regulators in Hong Kong want to label VAs as such, Ms. Swartz added.