Dubai’s Virtual Asset Regulator Levies Hefty Fines for Non-Compliance with its Regulations
Dubai, a global hub for virtual assets and cryptocurrencies, has taken a significant step forward in regulating the new industry of Virtual Assets. Earlier this year, the Dubai Virtual Assets Regulatory Authority (VARA) introduced its Virtual Assets and Related Activities Regulations 2023 (the Regulations), accompanied by rulebooks that set out the mandatory obligations for Virtual Asset Service Providers (VASPs). In a recent development, VARA levied a hefty fine of AED 10 million against the digital asset exchange OPNX and individual penalties of AED 200,000 against its co-founders for violating the Regulations and failing to seek proper registration.
These penalties highlight VARA’s commitment to enforcing the new Regulations. This overall, forms part of strengthening the UAE’s anti-financial crimes compliance framework and moving towards its removal from the Financial Action Task Force (FATF) ‘grey list.’
The Regulations at a Glance
The Regulations mandate that entities or individuals engaged in Virtual Asset Activities (VA Activities) in the UAE must obtain approval and a license from VARA. The regulated activities are: advisory services, broker-dealer services, custody services, exchange services, lending and borrowing services, payment and remittance services, and VA management and investment legal services. VARA has sole discretion in issuing licenses and can impose various restrictions.
The Regulations outline various market offenses, including insider dealing, unlawful disclosure, and market manipulation, with severe penalties for violators. VARA can classify other behaviours as market offenses, emphasizing the importance of compliance and reporting.
Violations of the Regulations and related rulebooks can result in substantial fines, as recently seen with OPNX, disgorgement of profits, and other penalties. These penalties apply to individuals as well as VASPs and serve as a deterrent against non-compliance.
Despite allowing an influx of digital currency firms to operate in the Emirate, VARA has shown that it is prepared to maintain high regulatory standards to weed out bad actors. Recently, VARA also suspended the operational license of BitOasis for failing to meet requirements, forcing the exchange to open new discussions with the regulator.
Regulatory Clarity and UAE Authorities
The Regulations have clarified the regulatory landscape by defining the roles of various authorities, including the Central Bank of the UAE (CBUAE) and the Securities and Commodities Authority (SCA). VARA’s licensing authority does not require a separate license from SCA, but entities must still comply with CBUAE regulations and the UAE’s Anti-Money Laundering (AML) law.
Compliance with both the Regulations and the UAE’s AML law is crucial to ensure the industry’s integrity and stability in line with FATF standards.
Dubai’s Virtual Assets and Related Activities Regulations represent a significant step towards regulating the virtual asset industry, promoting compliance, and safeguarding investors corporate services. The recent enforcement actions by VARA demonstrate the seriousness of these regulations and the commitment to maintaining a secure financial environment in Dubai and the UAE as a whole. If you require any assistance navigating VARA’s new framework or are interested in establishing a Virtual Assets business, don’t hesitate to reach out to one of our expert lawyers who are well equipped to guide you or contact us at admin@bankslegal.com
