VARA's Background and Formation
On 28 February 2022, Law No. 4 of 2022 “Regulating Virtual Assets in the Emirate of Dubai” [1] (the “Law”) was issued. The Law applies to Virtual Asset [2] services in Dubai, both on the mainland and in all free zones except the Dubai International Financial Centre (the “Territory”).
Further to the Law, the Dubai's Virtual Asset Regulatory Authority (“VARA”) was established as an affiliate of the Dubai World Trade Centre Authority (“DWTC”). VARA is the competent entity in charge of regulating, supervising and overseeing Virtual Assets and Virtual Asset Providers (“VASPs”)[3] in the Territory.
While this article provides a brief overview of VARA and the Law and Regulations, the purpose is to explain how marketing VARA-related activities will be regulated and enforced by VARA.
Objectives & Policy Goals
VARA is intended to have the following objectives:
- To promote Dubai as a regional and international hub for Virtual Assets and boost its competitive edge at both a local and international level;
- To increase awareness on investment, and encourage innovation, in this sector;
- To attract investments and encourage companies to set up base in Dubai to operate in the field of Virtual Assets;
- To develop regulations to protect both investors and dealers in Virtual Assets, and endeavour to curb illegal practices in the field; and
- To develop the regulations, rules, standards, etc. to be able to oversee VASPs, Virtual Asset Platforms (as defined in the Law) and other matters related to Virtual Assets.
The regulations referred to in point 5 above were eventually released almost one year later on 7 February 2023 by VARA [4] with a view to achieve the above objectives (the “Regulations”). The Regulations are established with two main goals in mind:
- To promote Dubai and ultimately the UAE as a safe and progressive jurisdiction worthy of Virtual Asset growth and innovation; and
- Position VARA and the UAE to be globally trusted from a compliance aspect, in particular with respect to FATF, an design a system that lends itself to be interactive and passportable.
Regulating virtual assets
Activities under VARA
As per the Law, VARA will oversee and regulate the following list of Activities:
- Virtual Asset Platform operation and management services;
- Services for the exchange between Virtual Assets and national or foreign currencies;
- Services for the exchange between one or more forms of Virtual Assets;
- Virtual Asset transfer services;
- Virtual Asset safekeeping, management, or control services;
- Services related to Virtual Asset Wallets; and
- Services related to offering, and trading, in Virtual Tokens.
VARA reserves the right to:
- clarify and define the above list of activities, either in a public announcement or on case by case basis.
- expand upon the above list; and/or
- create a list of prohibited activities related to Virtual Assets within the Territory.
Permit Requirement
Should a VASP wish to conduct any of the above-listed Activities, or if a Person wishes to conduct any activities related to Virtual Assets, within the Territory, it must first obtain a Permit [5].
If a Person, prior to the release of these Regulations, has been conducting an Activity in the Territory, it will need to apply to VARA to obtain a Permit.
If a Person wishes to begin conducting an Activity, it must first seek a Permit from VARA prior to obtaining the relevant commercial license to set up business within the Territory.
Marketing Regulations
Administrative order No. 01/2022 [6] relating to the Regulation of Marketing, Advertising and Promotions Related to Virtual Assets (the “Marketing Regulations”) applies to all marketing, promotions and advertisements which relate to Virtual Assets or the Activities within the Territory.
The Marketing Regulations applies to all entities, domestic or foreign, whether licensed by VARA or not that are catering for or targeting resident and/or customers within the Territory in relation to Virtual Assets or Virtual Asset activities.
The Marketing Regulations do not apply to an entity that is: (a) not conducting a Virtual Asset activity in the Territory; (b) originates outside the UAE; and (c) is not targeting any residents of the UAE. However, VARA reserves its right to act if it views that such Marketing poses a risk to its reputation as a competent regulator; or the reputation of the UAE or the Territory with respect to its management of the Virtual Asset sector.
An entity that is not licensed by VARA but wishes to conduct any form of Marketing in the Territory must first: (a) seek authorization from VARA to do so; (b) provide a valid permit allowing it to conduct the relevant Virtual Asset activity from its respective regulator in the jurisdiction which it is located; and (c) comply with all requirements in the Marketing Regulations.
Regulations
“Marketing” as per the Marketing Regulations includes the following:
- Communications, publications of data, information, promotional-influenced and/or sponsored material across any traditional and/or new-aged multimedia channels, etc.;
- Self-generated or Third-Party published social media posts/blogs, comments, endorsements, non-written communications, banners/billboards, videos, live-streams, etc.;
- Activities held in the Territory to encourage market participation in the sector – specifically soliciting clients or incentivizing purchase of any Virtual Asset products/services; and
- Advertisements (paid or unpaid) and all forms of publicity-driving content served across any platform and channel (owned, partner/affiliate or intermediary) etc.
All Marketing relating to Virtual Assets and its related activities in the Territory must:
- Be fair, clear, not misleading and clearly identifiable as marketing or promotional in nature;
- Not mislead in relation to the real or perceived advantages of Virtual Assets;
- Include a prominent disclaimer that the value of Virtual Assets is variable [can go up and/or down], cannot be guaranteed, and can be highly volatile;
- Not advocate that investments are safe, low risk or that returns are guaranteed;
- Not imply that investment decisions are trivial, simple, easy or suitable for all [without due diligence];
- Not imply that past performance of investments is an effective guide for, or guarantee of a future return – as such, any investment decision must be strictly based on consumer’s independent evaluation;
- Not imply an urgency to buy Virtual Assets in anticipation of future gains, or create a fear of missing out on future gains, by not buying now;
- Not advocate the purchase of Virtual Assets using credit or other interest accruing facilities;
- Ensure that any targeted Marketing is undertaken responsibly by suitably licensed Entities, to present only appropriate products or services to the audience, including but not limited to defined criteria on investor qualification, and event attendance; and
- comply with all applicable laws, regulations, guidelines or other rules applicable across the United Arab Emirates. and in specific to the Territory, including but not limited to those relating to Marketing, data protection and consumer protection.
The following clarifications should be noted:
- Further to paragraph II.2 of the Market Regulations, paid content refers to any entity posting, publicising, or otherwise presenting content on any physical or virtual media platform(including social media) in relation to Virtual Assets or Virtual Asset activities, in exchange for any form of remuneration or value in kind offer for the service, and such content must be clearly indicated to have been paid for.
- The issuance of any kind of Virtual Assets, whether or not transactional in nature, as part of Marketing or any other engagement purpose (including where they may be specifically limited in usage, to granting the holder – access to specific facilities, services, activities, events etc.) is classified as a Virtual Assets activity, and will be subject to licensing approval by VARA.
Fines and Penalties
Administrative Order No. 2/2022 [7] sets out the fines and penalties that VARA undertakes to impose in the event of a violation of the Market Regulations pursuant to Articles 18 and 20 of the Law.
If an entity commits any of the violations laid out in the table below, VARA will first issue a cease and desist letter, followed up with corresponding penalties as it deems necessary.
Violation and Fine
- Failure to ensure that any marketing, promotion or advertising meets the requirements of paragraph II.1 or II.5 of the Marketing Regulation; and/or Failure to notify VARA immediately of any non-compliance post occurrence - Fine of AED 200,000
- Failure to comply with paragraph II.2 of the Marketing Regulation regarding paid content; or Carrying out Marketing relating to Virtual Asset or Virtual Asset activities on any form of media platform after a request from VARA not to do so - Fine of AED 150,000
- Failure to comply with paragraph II.7 of the Marketing Regulation by entities not licensed by VARA but targeting residents and/or customers within the Territory in relation to Virtual Asset activities - Fine of AED 150,000
- Failure to comply with paragraph II.4 of the Marketing Regulation regarding issuance of any forms of Virtual Asset without VARA approval and/or license - Fine of 100,000
- Failure to clearly communicate to the public the noncompliance with the Marketing Regulation as reasons for any suspension or cancellation penalties - Fine of AED 100,000
- Failure to maintain the necessary records in compliance with paragraph II.3 of the Marketing Regulation – which states that records must be retained for a minimum of two years from their date of last publication - Fine of AED 50,000
- Any other failure to comply with the Marketing Regulation - Fine of AED 50,000
Repeat Violation: If an Entity repeats the same violation within one year from the date of the previous violation, the amount of the fine in the table will be doubled, provided that a fine does not exceed five hundred thousand Dirhams [AED 500,000] per offence.
Penalty incremental to fines
VARA reserves the right to call for activity suspension ifit is not satisfied with the entity assurances, or otherwise has reason to believe requirements of this Marketing Regulation will not be met. In particular, should VARA require an event, to be suspended or cancelled, the entity responsible for organising, hosting, promoting or managing such event must announce the suspension or cancellation immediately to the public, clearly stating non-compliance with the Marketing Regulation as the reason for such action, in the announcement.
Our Experience
lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities for virtual asset service providers.
This article is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Romain Rolland for any questions.
Footnotes
[2] Virtual Assets, as defined in the Law, means 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 (as defined in the Law), and any digital representation of any other value as determined by VARA.
[3] A Person (a natural or legal person) authorized by VARA to conduct the Activity (as defined in the Law and in Section II above)
[4] The Virtual Assets and Related Activities Regulations of 2023 https://www.vara.ae/media/Virtual%20Assets%20and%20Related%20Activities%20Regulations%202023.pdf
[5] A document issued by VARA authorising a VASP to conduct the Activity, or authorising a Person to conduct any activities, business, or services related to Virtual Assets as determined by VARA.
[7] https://www.vara.ae/media/Administrative-Order-02-Penalties-for-Non-Compliance-27Jan2023.pdf
