VARA is the regulator of crypto exchanges in the United Arab Emirates and Dubai. In this article, we summarize the VARA regulation for becoming a crypto exchange and crypto license in Dubai.
Crypto exchange means engaging in any of the following activities:
- exchanging crypto Assets for fiat currency or vice versa;
- exchanging one or more crypto Assets;
- facilitating the trading of crypto Assets by matching orders between buyers and sellers and conducting exchanges, trades or conversions between crypto assets and fiat currency or between different crypto assets or
- maintaining a list of buy and sell orders for the purpose of facilitating exchanges, trades, or conversions between crypto assets and fiat currency or between different crypto assets.
License Application Fee: | AED 100,000 |
Paid-UP Capital Requirement: | Exchange Services with using Custody Services by VARA licensed institution the higher of [i] AED 800,000; or [ii] 15% of fixed annual overheads. In all other instances, the higher of [i] AED 1,500,000; or [ii] 25% of fixed annual overheads. |
Corporate Governance Rules
To get the crypto license in Dubai, the financial institution must provide corporate governance standards. The governing body of a Crypto Exchange is required to have both executive and non-executive directors, including at least one independent director who is not a shareholder or executive. Additionally, if the exchange offers exchange services, it must create committees for compensation, nominations, and audits.
On an annual basis, Crypto Exchanges must report the details of all compensation and/or remuneration of all members of the Board and its committees (including salaries, allowances, expenses, bonuses, benefits, or other incentive programs)
Crypto Exchanges must publish and enforce a code of conduct or other rules for all participants on their trading venue.
Policies & Procedures for Crypto License
Crypto Exchanges in Dubai must establish, implement and enforce appropriate written internal policies and procedures such as:
- the prohibition, detection, prevention and/or deterrence of Market Offences and any other abusive practices within their business or using their services (internal rules, compliance programs, sanctioning policies and powers)
- the ability of clients to have access to and withdraw their crypto assets (especially during periods of high uncertainty and/or extreme volatility)
- settlement, delivery and clearing establishing and amending the method of determining the price of crypto assets, including the use of market data to ensure the integrity and reliability of the determined price; and
IT Systems & Governance
Crypto Exchanges must have in place effective systems, procedures and arrangements to ensure that their trading systems
- are resilient;
- have sufficient capacity to ensure orderly trading under conditions of high uncertainty and/or extreme volatility;
- are able to reject orders that exceed pre-determined volume and price thresholds or are clearly erroneous;
- are fully tested
- are subject to effective business continuity arrangements (back-up and/or disaster recovery systems, facilities and sites, to ensure continuity of their services and reporting ability)
Reconciliation
Crypto exchanges are obligated to finalize the complete settlement of a cryptocurrency transaction within 24 hours after the transaction has been executed on their trading platforms.
Margin Trading
Crypto Exchanges may only provide Margin Trading services if explicitly authorised to do so by VARA. Crypto Exchanges cannot offer or provide Margin Trading services to a Retail Investor (only accredited investor)
Crypto Exchanges must at all times ensure that they have sufficient crypto assets to provide Margin Trading services and can satisfy client obligations
Crypto Exchanges authorised by VARA to provide Margin Trading services must ensure that
- the aggregate funds allocated for Margin Trading services by the Crypto Exchange (for its Operational Exposure)
- The credit granted to a single client for margin trading purposes does not surpass one-tenth of the total funds that are directly or indirectly linked to margin trading in the exchange’s operational exposure.
Crypto Exchanges may only accept the following types of collateral in a Margin Trading Account:
- the crypto assets financed on margin in that account;
- fiat currency; and
- Fiat-Referenced Virtual Asset referencing USD [or AED, as approved by VARA]