UAE Virtual Asset Regulation: Comparison between ADGM and VARA

The UAE has become one of the important centers for global cryptocurrency and blockchain innovation due to its advantageous geographical location, clear support for cryptocurrency policies, and favorable tax policies. In the field of virtual asset regulation, the Abu Dhabi Global Market (ADGM) and the Dubai Virtual Assets Regulatory Authority (VARA) represent two different regulatory models. This article will delve into the main contents and differences of these two regulatory agencies in terms of compliance regulation.

Regulatory Overview of Abu Dhabi and Dubai

Abu Dhabi regulatory model

ADGM, as an international financial center, was established to support regional economic strategies and play a role 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 regulatory provisions for crypto assets.

The FSRA regulates virtual assets as a specific asset class within the financial industry. Therefore, the scope of the cryptocurrency asset licenses it issues is relatively limited. The application process typically 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 technological background, while traditional financial institutions have a greater advantage in transforming to engage in cryptocurrency business.

Dubai regulatory model

The virtual asset licensing in Dubai is divided into two major 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 primarily aimed at large institutions with financial qualifications. At the same time, the DIFC also provides a special channel for purely technology development enterprises with an "innovation license," which can shorten the application time to about three months.

2. Virtual Assets Regulatory Authority (VARA): A regulatory body established by the Dubai government that does not directly issue business licenses but overlays virtual asset operating permits on existing company licenses. Its regulatory scope covers mainland 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 ICOs in the UAE may need to obtain approval from the SCA.

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 companies providing 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.

Regulation Scope of Virtual Asset Activities

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

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 NFT-related activities are not within the regulatory scope.

Application Conditions and Requirements

1. Company Registration:

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

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

   • VARA generally requires at least one desk for every two visas.
   • In general, ADGM requires at least one desk for every three visas.

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 sets the operating expense (OPEX) cycle for 6 to 12 months based on the type of activity.

application process and time

The application process for VARA includes preparing a compliance business plan, having an initial meeting with VARA, submitting materials as required, reviewing the materials, making operational adjustments based on conditions, re-reviewing, and issuing the license, with the time required to obtain a business license generally ranging from 4 to 8 months. Required documents include an overview of virtual asset services, KYC documents for company directors and shareholders, and financial forecasts.

The application process for ADGM includes conducting 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 is generally around 6 months. Required documents include 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 fees vary depending on the activity, ranging from $22,000 to $55,000.

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

By understanding the regulatory requirements and differences between Abu Dhabi and Dubai, cryptocurrency practitioners can better conduct their business, ensure legal compliance, and promote the healthy development of the entire crypto industry.