UAE Virtual Asset Regulation: A Comparative Analysis of ADGM and VARA

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its strategic geographic location, clear support for cryptocurrency policies, and favorable tax environment. In the field of virtual asset regulation in the UAE, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Asset Regulatory Authority (VARA) exhibit different characteristics and positions. This article will delve into the key aspects and differences in compliance regulation between Abu Dhabi and Dubai.

Regulatory Overview of Abu Dhabi and Dubai

Abu Dhabi

ADGM, as an international financial center, was established to support the economic strategy of the region and to serve as a global financial and business hub. The Financial Services Regulatory Authority (FSRA), as the independent regulatory body of ADGM, is responsible for overseeing and enforcing specific regulations on cryptocurrency assets.

The FSRA regulates virtual assets as a specific asset class within the financial industry. Therefore, the scope of the crypto asset licenses it issues is relatively limited, lacking a specialized customized regulatory framework. The application process typically takes six to seven months, and the compliance requirements for applicants are quite strict, following the licensing standards of traditional financial institutions. This creates a higher entry barrier for exchanges with a technical background, while traditional financial institutions are more adaptable to transforming and engaging in crypto business.

Dubai

The virtual asset licensing in Dubai is divided into two main systems:

1. Dubai International Financial Centre (DIFC): As a financial free trade zone, its regulatory model is similar to that of ADGM. The Dubai Financial Services Authority (DFSA) classifies virtual assets as tokenized assets within financial instruments for regulation. The application process takes about seven to eight months and is mainly aimed at large institutions with financial qualifications. It is worth noting that DIFC provides a special channel for "innovation licenses," where purely technology development companies (not involving client fund custody or financial transactions) can be approved in approximately three months.

2. Virtual Assets Regulatory Authority (VARA): A regulatory body established by the Dubai government, which does not directly issue business licenses, but rather overlays virtual asset operating permits on existing company licenses. Its regulatory scope covers onshore companies in Dubai and free zone companies (excluding DIFC), authorizing specific virtual asset businesses through a licensing mechanism.

In addition, the Securities and Commodities Authority (SCA) is responsible for regulating ICOs and token issuance activities. Companies planning to conduct an ICO in the UAE may need to obtain approval from the SCA.

The Main Differences Between VARA and ADGM

Institutional Nature and Positioning

VARA is the government authority established by the Dubai government to specifically regulate virtual assets. It is responsible for overseeing the virtual asset industry in Dubai (excluding DIFC), including virtual currency exchanges, virtual asset venture capital funds, NFT platforms, and more.

ADGM is a financial free trade zone with an independent regulatory system, and its Financial Services Regulatory Authority (FSRA) is responsible for regulating businesses that provide virtual asset-related services within ADGM.

jurisdiction

The jurisdiction of VARA is the Emirate of Dubai (excluding DIFC). The jurisdiction of ADGM covers the Abu Dhabi Global Market and Al Maryah Island.

Scope of Regulation for Virtual Asset Activities

Virtual asset activities regulated by VARA include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, investment trading as an agent, and also include activities related to NFTs.

Virtual asset activities regulated by ADGM include brokerage services, virtual asset consulting services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment trading as an agent, but activities related to NFTs are not within the regulatory scope.

Application Conditions and Requirements

1. Company Registration:

   • VARA requires the applicant company to be registered in the mainland of Dubai or in any free trade zone of Dubai (except for DIFC).
   • ADGM requires the applicant company to register in the Abu Dhabi Global Market.

2. Office Space: Both require a physical office and do not accept shared desks.

   • Typically, VARA requires at least one desk for every two visas.
   • Generally, at least one desk is required for every three visas in ADGM.

3. Regulatory Capital:

   • The regulatory capital requirements of VARA range from $11,000 to $27,000, with a maximum of $408,000, or 15%/25% of fixed annual expenses, depending on the type of virtual asset activity.
   • ADGM determines the operating expense (OPEX) cycle based on the type of activity, which is 6 to 12 months.

Application Process and Time

The application process of VARA includes preparing a compliant business plan, having an initial meeting with VARA, submitting materials as required, reviewing the materials, making operational adjustments based on conditions, undergoing a second review, and issuing the license, among other steps. The time required to obtain a business license is generally 4-8 months. The document checklist includes an overview of virtual asset services, KYC documents of company directors and shareholders, financial forecasts, and more.

The application process for ADGM includes due diligence and discussions with the FSRA team, submitting a formal application, obtaining in-principle approval, obtaining final approval, and conducting "operational launch" testing, among others. The application time generally takes about 6 months. The document checklist includes a business plan for virtual asset services, KYC documents for company directors, shareholders, and other key personnel, financial forecasts, etc.

required fee

The application fee for VARA ranges from $11,000 to $27,000, and the ongoing supervision fee varies depending on the activity, ranging from $22,000 to $55,000.

The application fee for ADGM ranges from 20,000 to 125,000 USD, and the ongoing supervision fees vary depending on the activity, ranging from 15,000 to 60,000 USD.

By understanding the differences in virtual asset regulation between Abu Dhabi and Dubai, crypto practitioners can better choose a regulatory environment that suits their business, ensuring legal compliance and promoting the healthy development of the entire crypto industry.