A ‘Virtual Asset’ (VA) is described as a “digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes” under the Dubai VA Law. This includes Virtual Tokens as well as any other digital representation of value as established by VARA.” A ‘Virtual Token’ is defined as “a digital representation of a set of rights that can be offered and traded digitally through a Virtual Asset Platform.”
This broad definition was chosen on purpose to ensure that VARA’s jurisdiction extends beyond the traditional definition of regulated crypto activities, such as trading cryptocurrencies on centralized exchanges, and allows VARA to develop specific rules for the growing range of digital assets available, such as NFTs and utility tokens.
What precisely is VARA?
VARA is one of the UAE’s five financial services authorities, however its main role is to regulate VAs. Financial services are controlled at the federal level in the UAE (a federal state made up of seven emirates) by the Security and Commodities Authority (SCA) and the UAE Central Bank. The DIFC and the Abu Dhabi Global Market (ADGM) are autonomous financial free zones located within the two emirates of Dubai and Abu Dhabi. The DIFC and ADGM have their own common law legislative systems (primarily pertaining to corporate, commercial, and financial services) as well as their own common law judicial systems. Importantly, the DIFC and ADGM both have their own financial services regulator: the Dubai Financial Services Authority (DFSA) and the Financial Services Regulatory Authority (FSRA). The DFSA and the FSRA have each created their own virtual asset-related regulatory framework. VARA is a Dubai financial services regulator that was founded in 2022 to regulate virtual asset-related financial services operations at the emirate level (excluding the DIFC). Virtual assets legal services are also being provided in the emirate by professionals in touch with VARA. The SCA is intended to have jurisdiction over virtual asset-related operations done in or from the UAE (excluding the emirates of Dubai, DIFC, and ADGM). The SCA has yet to create its own virtual asset regulations, and it is unclear if it plans to do so. As a result, there is currently no clear structure for establishing a UAE-based virtual asset firm outside of Dubai, DIFC, and ADGM.
Role of Professionals Providing Virtual Assets Legal Services Pertaining to VARA
Legal professionals specializing in virtual assets and related regulatory matters can play several crucial roles in ensuring compliance and facilitating the growth of the virtual asset industry:
- Regulatory Compliance: Legal experts can assist virtual asset businesses and individuals in understanding and adhering to the regulatory requirements set forth by VARA Dubai or any other relevant regulatory authority. They can provide guidance on licensing, reporting, and other compliance obligations.
- Licensing and Registration: Professionals can help businesses navigate the process of obtaining licenses or registrations required to operate legally within the virtual asset space. This might involve preparing and submitting applications, providing necessary documentation, and ensuring that all criteria are met.
- Legal Opinions and Advice: Attorneys can offer legal opinions and advice to individuals and companies engaged in virtual asset activities. This could range from advising on the legality of specific transactions to providing guidance on structuring business models within the regulatory framework.
- Drafting Contracts and Agreements: Legal experts can draft contracts and agreements tailored to virtual asset-related transactions. These could include terms and conditions for trading platforms, investment agreements, smart contracts, and more.
- Dispute Resolution: In the event of disputes or legal conflicts arising within the virtual asset industry, lawyers can represent their clients and help them navigate mediation, arbitration, or legal proceedings to resolve the issues.
- Due Diligence and Compliance Audits: Legal professionals can conduct due diligence on virtual asset projects, businesses, or transactions to assess their compliance with regulations and identify any potential legal risks.
- Data Privacy and Security: With virtual asset transactions often involving personal data and digital assets, lawyers can advise on data privacy regulations and help businesses implement appropriate measures to protect user information.
- Policy Advocacy: Lawyers with expertise in virtual assets can engage in policy advocacy, working with regulatory authorities and policymakers to shape balanced and effective regulations that foster innovation while mitigating risks.
It’s important to note that the roles and responsibilities of legal professionals providing virtual assets legal services can evolve based on the specific regulatory environment, the establishment of regulatory bodies like VARA Dubai, and the ongoing developments in the virtual asset industry. If VARA Dubai or a similar authority has been established, seeking advice from legal experts with expertise in virtual assets and local regulations would be essential for businesses and individuals operating in this space.
VARA has said that its mission since its inception in 2022 is to develop an inclusive, sector-friendly, yet ethical and accountable environment for the operation of VASPs and VA activities in Dubai. With the implementation of this regulatory framework, VARA demonstrates that it will govern not just traditional areas of financial services, which are already beginning to include VAs into their operations, but also sector-specific needs that are unique to VAs. The emphasis is thus not confined to Web3 firms, but to any company that desires to incorporate some aspect of VA activity into a current or prospective business.
While the UAE has declared its aim to become a global crypto center, it has done so in light of recent incidents that have tainted the sector’s reputation. VARA is paving the road for Dubai-based VASPs to stand out worldwide as highly dependable enterprises in the VA sector by allowing them to operate under a framework that enforces severe regulatory criteria. It is essential VASPs have adequate assistance from their virtual assets legal services providers to carry out their operations efficiently.