VARA powers digital finance

Nora Al Muhamad and Ammarah Shamim of Gateley Middle East talk about VARA and the future of virtual assets in the UAE and how regulatory clarity is driving market confidence in the country.

Dubai has emerged as a global leader in digital finance and at the heart of this transformation is the Virtual Assets Regulatory Authority (VARA). Established under Dubai Law No. (4) of 2022, VARA represents a bold step toward creating a transparent, secure and innovation-friendly environment for virtual assets. Its framework is not only reshaping investor confidence but also positioning Dubai as a benchmark for responsible digital finance.

The genesis of VARA

The enactment of Law No. (4) of 2022 marked a turning point in Dubai’s approach to virtual assets. Before this law, the regulatory landscape was fragmented, creating uncertainty for businesses and investors. The law introduced a unified framework to protect investors, prevent illicit finance and foster innovation, whilst aligning with international standards.

VARA was established as an independent regulator under the Dubai World Trade Centre Authority, with jurisdiction across Dubai’s mainland and free zones, excluding the Dubai International Financial Centre (DIFC), which maintains its own regime under the Dubai Financial Services Authority (DFSA). VARA’s mandate includes licensing Virtual Asset Service Providers (VASPs), supervising virtual asset activities and enforcing compliance.

Crucially, VARA collaborates with the Securities and Commodities Authority (SCA) and the DFSA to harmonise oversight. This cooperation ensures consistency across jurisdictions, reduces duplication and strengthens investor protection through joint licensing and enforcement mechanisms.

VARA also partnered with the Dubai Multi Commodities Centre (DMCC) to pilot tokenisation of gold and diamonds. These initiatives aim to integrate physical commodities into blockchain ecosystems, creating real-world, investable products that enhance liquidity and global market access.

Regulatory framework and rulebooks

In 2023, VARA issued its Virtual Assets and Related Activities Regulations, supported by a suite of compulsory and activity-specific rulebooks. These rulebooks cover governance, compliance, marketing and anti-money laundering (AML) obligations, alongside detailed requirements for each regulated activity.

Licensing categories for VASPs

VARA defines eight regulated activities, including:

• Advisory Services
• Broker-Dealer Services
• Custody Services
• Exchange Services
• Lending & Borrowing
• Management & Investment Services
• Transfer & Settlement Services
• VA Issuance.

VASPs must obtain a license for each activity they intend to perform. Custody services require segregation and standalone licensing, reflecting VARA’s emphasis on safeguarding client assets.

Category 1 vs. Category 2 VA Issuances

The Virtual Asset Issuance Rulebook distinguishes between:

• Category 1 Issuances: Fiat-Referenced Virtual Assets (FRVAs) and Asset-Referenced Virtual Assets (ARVAs), such as tokens backed by commodities or real estate. These require a full VARA license and prior approval.
• Category 2 Issuances: All other virtual assets not falling under Category 1 or exempt categories. Whilst a license is not mandatory, distribution must occur through a licensed entity.

Legal and compliance considerations

Operating under VARA’s regime demands strict adherence to its rulebooks. Non-compliance carries significant risks, including:

• Fines and penalties
• Suspension or revocation of licenses
• Cease-and-desist orders
• Regulatory intervention in client asset management

VASPs must implement comprehensive compliance programs, covering AML/ CFT controls, governance standards and client asset protections. Failure to do so can result in reputational damage and operational shutdown.

Cross-border collaboration

VARA is not static and it evolves in line with global best practices. Its framework aligns with Financial Action Task Force (FATF) standards, mandating enhanced due diligence, transaction monitoring and compliance with the Travel Rule^[1] for transfers above AED 1,000.

Through partnerships with international regulators and industry bodies, VARA is fostering interoperability and global trust. This approach supports cross-border innovation, enabling Dubai to serve as a gateway for digital finance between East and West.

Conclusion

VARA’s establishment under Dubai Law No. (4) of 2022 is more than a regulatory milestone; it is a strategic enabler of Dubai’s vision for a borderless digital economy. By prioritising clarity, compliance and collaboration, VARA is driving market confidence and shaping the future of virtual assets in the UAE and beyond.
For businesses and investors, the next step is clear: obtaining the appropriate VARA license is essential to operate lawfully and benefit from the opportunities this regime offers. A well-structured licensing strategy not only ensures compliance but also positions firms to take advantage of Dubai’s crypto-friendly ecosystem and global connectivity.

Equally important is securing specialised legal and regulatory advice. The complexity of VARA’s rulebooks, combined with cross-border considerations, means that expert guidance is critical to avoid costly missteps and to structure operations in a way that maximises corporate benefit whilst mitigating risk.

First published by The Oath Legal Magazine

^[1] The Travel Rule requires Virtual Asset Service Providers (VASPs) to share key information about the sender and recipient, such as names, account details and identification, when processing transactions, ensuring transparency and traceability across borders.