Dubai’s Virtual Asset regulatory Authority (VARA) has issued a statement with regards to FTX exchange. It reiterates that is has revoked the approval of FTX license as well as suspended its MVP License. As per the market notification, while FTX MENA had not commence local operations, VARA will be looking into the impact of FTX on domestic market exposure not limited to FTX MENA

As per the statement, On November 11, 2022, one hundred and thirty-four [134] entities related to, and including, FTX Trading Ltd., FTX Exchange FZE, and Alameda Research [Bahamas] Ltd. [collectively, the “Debtors”] filed a petition in the U.S. Bankruptcy Court for the District of Delaware for relief under Title 11 of the United States Code.

FTX Exchange FZE [FTX MENA], one of the aforementioned entities, had received approval from VARA for a Minimum Viable Product [MVP] licence on 15-Jul-2022 – the Approval was revoked as of 10-Nov-2022 and the Licence stands suspended in consequence.

FTX MENA was in the readiness preparatory phase and had not received VARA approval to commence operations, on board clients or service the market in the MVP Phase of the regulatory regime. Client Money Account with a domestic bank account had also not been secured – which is a pre-requisite for VARA to authorise any VASP operations in the UAE.

As such, the FTX MENA is confirmed to have no client exposure.

Further, in line with VARA’s principles of mitigating market and investor risk, all Virtual Asset Service Providers [VASPs] that have engaged with VARA to participate in Dubai’s regulated ecosystem, have been asked to provide disclosures to determine the severity of domestic market exposure, and contagion scale across the UAE. Details sought include:

·       Exposure to the FTX group of companies referenced in the 11-Nov-2022 bankruptcy filing, including holdings of the FTT token and any other assets

·       Nature and risk of the exposure; alongside the scale/magnitude; and impact/severity and manageability;

·       UAE residents that are impacted, including number of users and magnitude of exposure – both retail and institutional clients [not limited to FTX MENA];

Detailed action plans to mitigate the exposure highlighted above.

Following receipt of the information, VARA will publish a summary closure statement on impact within the VARA Regime. 

VARA also published the following statement, ” The MVP Phase is in its readiness preparatory stage to allow for approved licensees to fulfil all pre-conditions required to undertake MVP market operations within the VARA Regime. As such, no MVP licensees are permitted to provide any regulated services/activities to their specifically authorized market segment(s) until after VARA’s operationalization of the MVP Phase. VARA is following a developing matter involving the potential insolvency, and alleged fraudulent behavior of an affiliate of a Virtual Assets Service Provider (VASP) licensed for participation in the MVP Phase. The situation has been, and will continue to remain closely monitored for latest updates to ensure that timely and substantive actions are taken within the Emirate of Dubai to protect investors and all market participants, backed by active enforcement of regulatory requirements relating to custody and segregation of client money; insurance and liquidity cover; and in general all aspects pertaining to market abuse prevention.”

It is obvious that while FTX MENA had not commenced operations, there were a number of entities and individuals utilizing FTX international platform. This is well noted given that the MENA region was the third biggest revenue generator for FTX not in terms of number of customers but in terms of volume of trades.