Dubai’s Virtual Asset Regulatory Authority (VARA) last month issued the world’s first comprehensive framework for virtual assets (VA). Its rules serve as a benchmark for Hong Kong and other jurisdictions as they prepare to launch their own guidelines for virtual asset service provider (VASPs) in coming months.
In its role as a first mover, Dubai has done a lot of the “heavy lifting” for other jurisdictions, and it has gained an advantage in the race to become a global virtual assets hub, said Kristi Swartz, partner at DLA Piper.
“VARA’s ‘mantra’ was that it wanted this legislation to be portable – to set out a minimum viable product that other governments can look to and use to determine what the minimum standards [for virtual assets] should be,” she told FinanceAsia.
DLA Piper participated in the group of industry and legal experts that advised VARA in the construction of the framework, following an industry consultation.
Swartz told FA that unveiling the world’s first framework on February 7 was nerve-wracking and likened it to “having your homework be graded worldwide”.
“We’re very proud of what we ended up with,” she added.
The framework comprises four compulsory rulebooks applicable to any VASP operating in Dubai, and seven additional rulebooks for those engaged in specific activities, including payments, advisory and exchange services.
Additionally, firms providing custody services must do so under a separate company if they plan to provide other services such as asset management. Swartz explained the rationale for this to be so that “we don’t have a repeat of the meltdowns that have happened,” alluding to the collapse of major crypto exchange, FTX, last year, and earlier, of Lehman Brothers.
Companies operating on the periphery of VAs – notably those utilising distributed ledger technology (DLT) or investing their own portfolio in Vas – can voluntarily register with VARA.
When designing a VA framework, there are two overarching principles that should guide all regulators globally, Swartz explained: consumer protection and Financial Action Task Force (FATF) compliance. “There's just no compromise there,” she stressed.
The framework strikes the right balance between investor protection and consumer friendliness, she said. She also praised its durability given the pace of change in the industry.
“[The framework] is not really around a particular product; it’s around the activity and the concept. A product in this space could fairly quickly fall out of regulation,” she explained.
“Dubai has long been committed to protecting its business environment through a range of measures designed to promote entrepreneurship and innovation,” Ben Zhou, co-founder and CEO of Bybit, reiterated.
“From robust intellectual property laws to streamlined registration processes, Dubai offers a level playing field for businesses of all sizes and sectors,” he told FA.
He noted that the market’s “future-ready mindset” was behind Bybit’s decision to relocate to Dubai, from Singapore, last year. In fact, the company’s Dubai office is right next to VARA’s, he said.
“We are happy to be part of Dubai’s journey to become a hub for digital assets and blockchain technology.”
Hong Kong is due to publish its own first framework on VAs in June this year, focussing on their exchange.
One key consideration that remains to be addressed in the special administrative region (SAR) is whether VAs should fall under the purview of the Securities and Exchange Commission (SFC). This would imply that they are securities, but it remains unclear whether regulators in Hong Kong want to label VAs as such, Swartz explained.
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