VARA Requirements for Virtual Asset Transfers, Exchange & Settlement Services in Dubai

In today’s rapidly evolving digital economy, virtual assets have emerged as a transformative force in global finance. The regulatory environment in Dubai, spearheaded by the Virtual Assets Regulatory Authority (VARA), has set a high benchmark for market integrity, consumer protection, and technological resilience. This article provides an in-depth analysis of VARA’s mandatory requirements for Virtual Assets Transfer and Settlement Services, and by extension, the integrated services of exchange, trade (buying and selling), and conversion. By exploring the intricate framework set forth in VARA’s Rulebooks, this article offers market participants a comprehensive roadmap to secure and maintain a VARA licence while operating within a complex, dynamic regulatory ecosystem.

I. The Evolution of VARA’s Regulatory Landscape

Dubai’s strategic ambition to become a global hub for virtual assets has led VARA to develop a robust regulatory framework that encompasses all facets of Virtual Asset Service Providers (VASPs). VARA’s approach is unique in that it integrates traditional financial prudence with cutting-edge technological requirements. The framework is built on four foundational pillars, as reflected in the VARA Rulebooks: Corporate Governance, Compliance and Risk Management, Technology and Information Governance, and Market Conduct.

This integrated approach ensures that VASPs maintain transparency, accountability, and operational excellence while safeguarding client assets. Whether a VASP is providing pure transfer and settlement services or combining them with exchange, trade, and conversion functionalities, the same high standards apply.

II. Corporate Governance and Company Structure

A. Establishing a Transparent Legal Entity

To obtain a VARA licence, a VASP must first establish a legal entity in the Emirate of Dubai using an approved legal form. The entity must exhibit a clear and transparent company structure, ensuring that the chain of ownership is readily discernible. This involves:

• Clear Ownership Structure: Identifying all Controlling Entities and Ultimate Beneficial Owners (UBOs) is critical. VARA requires that this information be accurate and up to date, as it provides regulators with the means to assess potential conflicts of interest and undue influence within the organization.
• Material Change Approval: Any significant alterations in the company’s structure, including changes to ownership or governance arrangements, must be submitted to VARA for prior written approval. This measure is designed to prevent the circumvention of regulatory controls and maintain market integrity.

B. Board Composition and Oversight

The Board of Directors is at the helm of corporate governance for any VASP. VARA mandates that:

• Fit and Proper Criteria: Board members must be rigorously vetted to ensure they possess the necessary skills, experience, and integrity. They should be “Fit and Proper” according to established criteria that include professional qualifications, relevant industry experience, and a clean record regarding past conduct.
• Structured Appointment Process: A formal procedure for the selection, appointment, and, if necessary, removal of Board members must be in place. This process should include periodic assessments of each member’s performance and suitability.
• Oversight and Accountability: The Board must establish internal policies and procedures that delineate its responsibilities, ensuring effective oversight of all VA activities. Regular meetings, detailed minutes, and transparent reporting mechanisms are essential to demonstrate compliance and support decision-making.

C. Senior Management and Responsible Individuals

Senior Management is responsible for executing the Board’s strategic vision and managing day-to-day operations. VARA’s requirements in this area include:

• Appointment of Responsible Individuals: At least two full-time Responsible Individuals must be appointed. These individuals must be either UAE residents or hold UAE passports, and they must satisfy stringent “Fit and Proper” criteria.
• Defined Roles and Reporting Lines: Senior Management must have clearly defined roles, responsibilities, and authority. Effective segregation of duties minimizes conflicts and ensures that operational activities adhere strictly to regulatory mandates.
• Ongoing Training and Evaluation: Regular training programs must be implemented for both Board members and Senior Management. These programs focus on regulatory obligations, risk management, and best practices in the virtual asset industry.

III. Comprehensive Compliance and Risk Management

A. Implementing a Robust Compliance Management System (CMS)

A key pillar of VARA’s regulatory framework is a comprehensive CMS that covers all aspects of a VASP’s operations. To comply with VARA, a VASP must:

• Develop Detailed Policies: Internal policies must be crafted to cover every facet of VA Transfer and Settlement Services, including how to rectify non‑executed, defectively executed, or incomplete transactions.
• Risk-Based Approach: The CMS must be risk‑based, allowing the VASP to identify, measure, and mitigate risks related to financial stability, operational processes, and technological vulnerabilities.
• Regular Reviews: The effectiveness of the CMS must be reviewed at least annually, with any deficiencies promptly addressed. This continuous improvement approach is vital in a sector where market conditions and technology evolve rapidly.

B. Appointment and Duties of the Compliance Officer (CO)

VARA requires that a VASP appoint a dedicated Compliance Officer who is:

• Experienced and Qualified: The CO must have at least five years of relevant experience in a compliance role, ensuring that they are well-equipped to oversee the CMS.
• Full-Time and Resident: The CO must be a full‑time employee and must be a UAE resident or hold a UAE passport, underscoring the importance of proximity and accountability.
• Direct Reporting: The CO should report directly to the Board, ensuring that issues of non‑compliance are escalated appropriately and addressed in a timely manner.
• Role in Training and Monitoring: The CO is also responsible for ensuring that all staff, including Senior Management, receive proper training on regulatory requirements, AML/CFT measures, and the latest industry practices.

C. Risk Management Framework

In parallel with compliance, VASPs must implement a comprehensive risk management framework that includes:

• Identification of Risks: Financial, market, credit, liquidity, operational, and cybersecurity risks must be continuously monitored and assessed.
• Regular Reporting: Risk exposures must be documented and reported to the Board on a quarterly basis (or more frequently if required). This proactive monitoring ensures that any emerging risks are managed before they can affect client assets or the overall integrity of the platform.
• Mitigation Strategies: Robust measures must be in place to mitigate identified risks, including stress testing, margin requirements (if applicable), and liquidity management practices.

D. AML/CFT and Regulatory Reporting

To further safeguard the market and protect consumers, VARA imposes strict Anti‑Money Laundering and Combating the Financing of Terrorism (AML/CFT) obligations:

• Client Due Diligence: Rigorous procedures must be followed to verify client identities and monitor transactions for suspicious activity.
• FATF Travel Rule: Compliance with the FATF Travel Rule is mandatory, ensuring that relevant data is transmitted securely between counterparties.
• Record Keeping: All records related to AML/CFT measures, client transactions, and regulatory reporting must be maintained for a minimum of eight years.

IV. Market Conduct and Client Relationships

A. Transparent Client Agreements

Client relationships are central to VARA’s regulatory framework, and transparency is non‑negotiable. VASPs must:

• Draft Clear Agreements: All Client Agreements must be in writing and clearly articulate the scope of services, including VA Transfer and Settlement, as well as integrated exchange, trade, and conversion functionalities.
• Disclose Fees and Risks: Agreements must include a detailed fee schedule, information on execution times, and a comprehensive risk disclosure statement. Clients must be made aware of the irreversible nature of virtual asset transactions, potential technical delays, and other inherent risks.
• Rights and Termination: Provisions must be included that outline the client’s rights to stop or amend a transaction, and the conditions under which either party may terminate the agreement. For retail investors, additional protections – such as the right to terminate without penalty – must be clearly stated.

B. Public Disclosures and Conflict of Interest

To maintain market integrity, VARA requires that VASPs publicly disclose:

• Conflicts of Interest: A detailed description of any actual or potential conflicts of interest must be made available on the VASP’s website, along with the procedures in place to manage and mitigate these conflicts.
• Third-Party Relationships: If any part of the service (such as exchange or conversion) is outsourced to a third party, the VASP must disclose the identity and role of that third party. This transparency ensures that clients understand the full spectrum of service delivery and any associated risks.
• Corporate History: Public disclosures should also include details of any past convictions or prosecutions of senior management or Board members, thereby enhancing the credibility and trustworthiness of the VASP.

C. Complaints Handling Mechanisms

Effective complaint resolution is essential to client protection:

• Multi-Channel Access: VASPs must implement a complaints handling system that allows clients to register complaints through multiple channels.
• Timely Acknowledgement and Resolution: Complaints should be acknowledged within one week and resolved within four weeks. In extraordinary circumstances, clients must receive regular updates until resolution is achieved.
• Record Maintenance: A detailed record of all complaints and the actions taken must be maintained, ensuring accountability and continuous improvement.

V. Technology and Information Governance

A. Robust Technology Governance

Given the technological complexity of virtual asset operations, VARA’s framework emphasizes:

• System Controls and Development: VASPs must implement a comprehensive technology governance framework that includes regular system audits, capacity planning, and rigorous testing procedures.
• Risk Assessments: Continuous risk assessments must be conducted to identify vulnerabilities in the technology infrastructure, ensuring that potential threats are promptly mitigated.

B. Cybersecurity and Data Protection

The security of digital systems and client data is paramount:

• Cybersecurity Policy: A formal Cybersecurity Policy, which addresses network security, data classification, access controls, and incident response, must be developed and submitted to VARA for review. This policy must be updated annually by the Chief Information Security Officer (CISO).
• Data Protection Measures: Compliance with local and international data protection laws is required. VASPs must implement technical and organizational measures to ensure the confidentiality, integrity, and availability of client data.

C. Cryptographic Keys and VA Wallets Management

Protection of virtual assets relies on stringent management of cryptographic keys and VA wallets:

• Secure Generation and Storage: VASPs must adhere to industry best practices for generating, storing, and managing cryptographic keys. This includes avoiding single points of failure and ensuring secure backups in geographically separate locations.
• Access Controls: Strict access management protocols, including audit trails and prompt revocation of access upon employee termination or role change, are mandatory.

D. Business Continuity and System Audits

Ensuring uninterrupted service is critical:

• Business Continuity Planning: VASPs must have a comprehensive Business Continuity and Disaster Recovery Plan in place. This plan should address scenarios ranging from cyberattacks to system failures, ensuring rapid recovery and minimal impact on client services.
• Regular Audits: Ongoing system audits, performance testing, and stress tests must be conducted to ensure that all technology systems remain resilient, reliable, and secure.

VI. Specific Operational Requirements for Integrated Services

A. VA Transfer and Settlement Operations

At the heart of VARA’s regulatory framework is the mandate for secure, client‑authorized VA Transfer and Settlement Services:

• Authorization Protocols: VASPs must establish clear procedures to ensure that all virtual asset transmissions and transfers are fully authorized by the client. Any deviation from the client’s instructions must trigger immediate remedial action.
• Error Correction: In the event of erroneous or incomplete transactions, the VASP must rectify the issue within 24 hours, restoring the client’s account to its proper state and assuming liability for any losses incurred.

B. Integrated Exchange, Trade, and Conversion Services

When exchange, trade, and conversion services are offered alongside VA Transfer and Settlement, additional operational requirements apply:

• Third-Party Integration and Transparency: If these activities involve third-party service providers, VASPs must clearly disclose the nature of these relationships to clients. This includes outlining the role, responsibilities, and any fees associated with the third party.
• Process Descriptions: VASPs must provide clients with a detailed description of how exchanges (swaps between different virtual assets or fiat currencies), trades (buying and selling), and conversions (changing asset types or fiat denominations) are executed. This description should cover the entire process, from order placement through to settlement on the Distributed Ledger Technology (DLT) . 
• Terms and Conditions Disclosure: All relevant terms, conditions, and fee structures associated with these activities must be transparently communicated to clients. VASPs remain directly responsible for ensuring that every transaction is completed successfully, subject only to any technical limitations of the underlying DLT.

C. Fiat On‑Ramp and Off‑Ramp Integration

For VASPs that also offer fiat deposit and withdrawal services:

• Third-Party PSP Integration: The VASP must integrate with reputable third-party Payment Service Providers (PSPs) to facilitate fiat on‑ramp and off‑ramp services.
• Client Money Accounts: Client funds must be segregated into dedicated accounts, with the platform accurately reflecting these balances in the corresponding fiat wallet.
• Regulatory Parity: The same rigorous regulatory standards apply to fiat transactions as to virtual asset transfers, ensuring full compliance with both VARA and applicable financial regulations issued by the CBUAE.

VII. Ongoing Regulatory Engagement and Training

A. Continuous Communication with VARA

VASPs must maintain an ongoing, transparent dialogue with VARA, ensuring that:

• Regulatory Reporting: All required reports and notifications are submitted promptly and accurately.
• Adaptation to Regulatory Changes: The organization remains agile and capable of adapting its internal policies and procedures in response to new regulatory developments or updates from VARA.

B. Staff Competency and Training Programs

Regular and targeted training is essential for ensuring compliance:

• Training Programs: Regular training sessions must be held for Board members, Senior Management, and all operational staff. These sessions should cover regulatory obligations, best practices in risk management, cybersecurity protocols, and client relationship management.
• Competency Assessments: The effectiveness of these training programs should be reviewed periodically, ensuring that all personnel remain current with the evolving regulatory and technological landscape.

VARA’s comprehensive regulatory framework for VA Transfer and Settlement Services, including integrated exchange, trade, and conversion services, sets a high standard for transparency, accountability, and operational excellence. By adhering to these mandatory requirements, VASPs not only protect client interests but also contribute to the overall integrity and resilience of Dubai’s virtual asset market.

The roadmap is clear: establish a transparent legal entity, implement robust corporate governance, build a risk‑based compliance and risk management system, and invest in state‑of‑the‑art technology and cybersecurity measures. In addition, maintaining transparent client communications and rigorous internal controls for operational activities, particularly when integrating third‑party services for exchange, trade, conversion, and fiat on‑ramp/off‑ramp functions, is imperative.

For legal and market participants aspiring to secure a VARA licence, this comprehensive guide offers a detailed understanding of the multifaceted requirements and operational considerations necessary for success. The framework not only facilitates a secure and efficient virtual asset ecosystem but also ensures that VASPs are well‑positioned to navigate the challenges and opportunities presented by this dynamic market.

By embracing these regulatory standards, VASPs can confidently operate in a market characterized by rapid innovation and dynamic risk profiles, ultimately contributing to a secure, transparent, and resilient digital financial ecosystem in Dubai.

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