Introduction to VARA
The Dubai Virtual Assets Regulatory Authority [VARA] is a regulatory body established by Law No. [4] of 2022 (Act) to regulate Virtual assets activities in the UAE. The Act applies to all zones across the Emirate of Dubai, including Special Development Zones (SDZs), Free Zones, and excluding Dubai International Financial Centre.
Virtual Asset Service Providers [VASPs] are entities that provide services related to virtual assets [VA], such as exchanges and brokers. Authorized virtual asset activities [VA Activities] include:
· Operating a trading platform for VA tokens;
· VA management, investment and advisory services;
· Providing custodial services for Vas.
With the principles of economic sustainability, cross-border financial security, and consumer protection, and for ensuring protection to investors VARA has established this comprehensive virtual asset framework.
VARA’s Rulebooks and Marketing Regulation
Under the Dubai Virtual Asset Law, VARA has issued four compulsory rulebooks that must be complied with by VASPs who meet VARA’s licensing requirements. These include the company, compliance & risk management, technology & information, and market conduct rulebooks.
In addition to the compulsory rulebooks, seven activity-specific rulebooks have been developed to cater to the risks associated with each virtual asset activity. These include the advisory, broker-dealer, custody, exchange, lending & borrowing, payments & remittances, and management & investment rulebooks. VASPs are required to comply with each activity rulebook only if they are licensed by VARA to offer the activity.
Furthermore, VARA has established rules relating to the regulation of Marketing, Advertising, and Promotions related to Virtual Assets. These rules are outlined in Administrative Order No. 01/2022 and ADMINISTRATIVE ORDER NO. 02/2022 [Marketing Regulation]. In this blog we will be focusing on the Marketing Regulation to provide a brief idea of the compliances and implications thereof.
What is Marketing-
Marketing is broadly defined as any form of communication, promotion, or advertising that includes direct or indirect messaging. This includes activities such as publishing data, information, or promotional material across any traditional or new-age multi-media channels. Marketing also encompasses self-generated or third-party social media posts, blogs, comments, endorsements, non-written communications, banners, billboards, videos, and live streams. Additionally, any activity held in the UAE that encourages market participation in the sector, specifically soliciting clients or incentivizing the purchase of any virtual asset products or services, falls under marketing regulations. This includes all forms of paid or non-paid advertisements and publicity-driving content served across any platform and channel, whether owned partner/affiliate, or intermediary.
Applicability of Marketing Regulation
The marketing regulations under VARA apply to all entities, whether domestic or foreign, that provide virtual asset-specific activities to UAE residents or customers. This means that regardless of whether an entity is licensed by VARA or not, they must comply with the marketing regulations if they are catering to or targeting UAE residents.
However, entities that do not conduct virtual asset activities within the UAE, originate outside the country, and do not target any UAE residents are exempt from complying with the marketing regulations under VARA.
It is pertinent to note that any entity which does not perform the functions of a VASP and which is not authorized by VARA to undertake VA Activity in the Emirate but wishes to conduct any form of Marketing targeted at directly, or indirectly addressing any residents or customers within the Emirate in relation to VA and/or VA Activities, must:
Obtain authorization from VARA before conducting any such Marketing;
Provide a valid permit to undertake such VA Activity, by the competent authority in the territory [outside of the purview of the VARA] in which the Entity is located; and
Comply with all requirements in this Marketing Regulation.
Compliance for entities conducting any form of marketing –
Every entity conducting any form of marketing related to virtual assets and/or virtual assets activities in the Emirate must comply with the following guidelines outlined in the Marketing Regulation:
1. Fair and Clear Marketing
· All marketing related to VA and/or VA activities must be fair, clear, not misleading, and identifiable as marketing or promotional in nature.
· Marketing must not mislead in relation to the real or perceived advantages of VA.
· A prominent disclaimer that the value of VA is variable [up and/or down], cannot be guaranteed, and can be highly volatile must be included.
· Investment decisions must not be portrayed as safe, low-risk, or guaranteed.
· Marketing must not imply that investment decisions are trivial, simple, easy, or suitable for all without due diligence.
· Past performance of investments must not be portrayed as an effective guide for, or guarantee of a future return. Any investment decision must be strictly based on the consumer’s independent evaluation.
· Urgency to buy VA in anticipation of future gains or fear of missing out on future gains by not buying now must not be created.
· Purchase of VA using a credit or other interest-accruing facilities must not be advocated.
· Any targeted marketing must be undertaken responsibly by suitably licensed entities, presenting only appropriate products or services to the audience, including but not limited to defined criteria on investor qualification, and event attendance.
2. Paid Content
· Paid content refers to any entity posting, publicizing, or presenting content related to VA or VA activities in exchange for any form of remuneration or value in kind (VIK) offer for the service.
· Such content must be indicated as paid content.
3. Record Retention
· Any entity undertaking marketing in relation to VA or VA activities in the emirate must retain a record of all relevant content and audience details for a minimum of two years from the date of the last publication or activity edition.
· These records must be made available to VARA for inspection upon request.
Consequences of Breaching Requirements
Entities dealing with digital assets must comply with these regulations to avoid hefty fines and other penalties.
In the event of any breach of the Marketing Regulation, the non-compliant entity will receive a cease-and-desist warning from VARA and a fine of AED 200,000. Moreover, a failure to maintain the necessary records can also attract a fine of AED 50,000. VARA also has the authority to impose additional measures against the non-compliant entity, which includes immediate suspension of its license for six months, rescinding any VARA approvals, revoking, or suspending any commercial licenses in coordination with the competent authority (DED), and requesting the entity to issue a public statement confirming its violation of the marketing regulation.
Furthermore, if an entity repeats the same violation within one year from the date of the previous violation, the relevant fine will be doubled, provided that it does not exceed AED 500,000.00 per offense.
Concluding Remarks
As Dubai continues to position itself as a hub for digital innovation and entrepreneurship, it is crucial that the regulations governing VA and digital assets keep pace with this rapidly evolving industry. VARA is playing a key role in this process, and its ongoing efforts will be instrumental in shaping the future of VA marketing in Dubai and beyond.
