October 25, 2023
Changes To Virtual Asset Issuance Rules In Dubai
When VARA’s regulations first came out in the first quarter of this year, one book that stood out from the others was the Virtual Asset Issuance rulebook (VAI) under which every token issued in the emirate of Dubai would need to be reviewed, approved and potentially licensed by the regulator prior to issuance.
This was a huge administrative burden on projects – particularly start-ups – and delayed launches indefinitely. In another move to demonstrate their understanding for the community, VARA today has revamped and updated the VAI.
The new VAI sets out different categories and requirements for VA issuances, depending on the nature and scale of the VA and the issuer. It also covers general rules for conduct of business, disclosures, compliance and supervision.
Crucially, the new VAI distinguishes between Category 1 and Category 2 VA issuances, which require a VARA licence or approval, respectively, before issuing a VA.
1. Category 1 VA issuances include fiat-referenced virtual assets (FRVAs), which are VAs that claim to maintain a stable value relative to one or more fiat currencies, but are not legal tender in any jurisdiction (i.e., stablecoins). FRVAs are subject to additional rules in Annex 1 of the new VAI, which cover aspects such as reserve assets, redemptions, audits and capital requirements.
2. Category 2 VA issuances include issuances by or involving certain non-financial businesses and professions, or issuances that exceed certain thresholds of transaction value, number of entities involved or total consideration received by the issuer. Category 2 VA issuers need to provide VARA with detailed information about the purpose, nature, risks and governance of the VA and the issuer, and comply with any conditions imposed by VARA.
The new VAI also applies to other VA issuances that do not fall under Category 1 or 2, as well as to exempt entities that issue certain types of VAs with limited functionality and value in specific circumstances. All VA issuers must comply with general rules relating to integrity, diligence, capabilities, disclosures, legal and regulatory compliance and environmental responsibility. They must also comply with specific rules on technology and security, anti-money laundering and combating the financing of terrorism, marketing, personal data protection, tax reporting and compliance, and books and records.
The new VAI is intended to provide a clear and comprehensive framework for regulating VA issuances in Dubai, while allowing for flexibility and innovation in the VA sector. It also aims to address the emerging risks and challenges posed by VAs, such as financial stability, consumer protection, money laundering, cyber security and environmental impact.