UAE Encryption Compliance Regulation: VARA and ADGM Interpretation

Written by: Beosin

With its convenient geographical location, clear government support for cryptocurrency policies, and tax-friendly environment (0% personal income tax, 9% corporate tax, and agreements signed to avoid double taxation with 146 countries), the UAE has become one of the global centers for cryptocurrency and blockchain innovation. Notably, in the regulatory field of virtual assets in the UAE, ADGM (Abu Dhabi Global Market) and VARA (Dubai Virtual Assets Regulatory Authority) have different characteristics and positions. When analyzing the regulated virtual asset licensing system in the UAE, it is essential to distinguish between the two jurisdictions of Abu Dhabi and Dubai.

This article will explore the key contents and differences in compliance regulation between Abu Dhabi and Dubai. By understanding the regulatory requirements and differences in both locations, crypto practitioners can better conduct their business, ensure their legal compliance operations, and promote the healthy development of the entire crypto industry.

Abu Dhabi VS Dubai

In Abu Dhabi, ADGM (Abu Dhabi Global Market) was established as an international financial center to support the region's economic strategy and play the role of a global financial and business hub. Its independent regulatory authority is the FSRA (Financial Services Regulatory Authority), responsible for overseeing and enforcing specific cryptocurrency asset regulations of ADGM.

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 and does not possess the specialized customized regulatory framework akin to Dubai VARA. The application process usually takes six to seven months, and the compliance requirements for the applicants are quite strict—adopting the licensing standards of traditional financial institutions. This creates a high barrier to entry for exchanges with a technical background, while traditional financial institutions are more adaptable to transitioning into crypto business.

In Dubai, the licensing of virtual assets is divided into two major systems:

1 DIFC (Dubai International Financial Centre): As a financial free trade zone, its regulatory model is similar to that of ADGM, with its independent regulatory body being the DFSA (Dubai Financial Services Authority). The DFSA classifies virtual assets as tokenized assets within financial instruments for regulation, with an application cycle of about seven to eight months, primarily aimed at large institutions with financial qualifications. However, it offers a special channel for "innovation licenses": pure technology development companies (not involving client fund custody or financial transactions) can be approved in about three months.

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

The SCA (Securities and Commodities Authority) 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: It is the government authority established by the Dubai government specifically to regulate virtual assets, 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: It is a financial free trade zone with an independent regulatory system, and its Financial Services Regulatory Authority (FSRA) is responsible for regulating companies providing virtual asset-related services within ADGM.

jurisdiction

VARA: The jurisdiction is the Emirate of Dubai (excluding DIFC).

ADGM: The jurisdiction covers the Abu Dhabi Global Market and Al Maryah Island.

Regulatory Scope of Virtual Asset Activities

VARA: Regulated virtual asset activities include brokerage services, virtual asset advisory services, exchanges/multilateral trading, virtual asset custody, virtual asset management, investment trading as a principal, and also include NFT-related activities.

ADGM: Regulated virtual asset activities include brokerage services, virtual asset advisory services, exchanges/multilateral trading, virtual asset custody, virtual asset management, and investment transactions as an agent, but NFT-related activities are not within the regulatory scope.

Application conditions and requirements

Company Registration: VARA requires the applicant company to be registered in the mainland area of Dubai or in any free zone of Dubai (except DIFC); ADGM requires the applicant company to be registered in the Abu Dhabi Global Market.

Office Space: A physical office is required for all, shared desks are not accepted. Generally, VARA requires at least one desk for every two visas; ADGM generally requires at least one desk for every three visas.

Regulatory Capital: VARA's regulatory capital requirements 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 has an operating expense (opex) cycle of 6 to 12 months based on the activity type.

Application process and time

VARA: The application process includes preparing a compliant business plan, conducting an initial meeting with VARA, submitting materials as required, reviewing materials, making operational adjustments based on conditions, re-reviewing, and issuing licenses, etc. The typical time required to obtain a business license is generally 4-8 months. Document checklist: Overview of virtual asset services, KYC documents for company directors and shareholders, financial forecasts, and other regulatory documents required by VARA.

ADGM: The application process includes due diligence and discussions with the FSRA team, submitting a formal application, obtaining in-principle approval, receiving final approval, conducting "operational launch" testing, and generally takes about 6 months. Document list: Virtual asset service business plan, KYC documents for company directors, shareholders, and other key personnel, financial forecasts, and other regulatory documents required by ADGM.

Required Fee

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

ADGM: The application fee ranges from $20,000 to $125,000, and the ongoing supervision fee varies depending on the activity, ranging from $15,000 to $60,000.