Dubai’s Virtual asset regulatory authority ( VARA) has updated its virtual asset rulebook and added new regulations with regards to what it calls Fiat referenced virtual asset ( FRVA) better know to most as virtual assets pegged to a stable value, or stablecoins.
As per VARA definition, “ Fiat-Referenced Virtual Asset (FRVA) means a type of Virtual Asset that purports to maintain a stable value in relation to the value of one or more fiat currencies but does not have legal tender status in any jurisdiction. An FRVA is neither issued nor guaranteed by any jurisdiction and fulfils its functions only by use and acceptance within the community of users of the FRVA.”
However VARA also notes an exception and states that any FRVA, i.e. stablecoin pegged to the value of the UAE currency, the AED will not be approved as it will remain under the sole and exclusive regulatory purview of the Central bank of the UAE.
In addition FRVAs exclude assets that are representations of any equity claim; issued by central banks acting in their monetary authority capacity [e.g. central bank digital currencies [CBDCs]]; or are tokenized bank deposits used only for interbank settlement purposes.
It also excludes reference Currency means, in relation to an FRVA, a VARA-approved fiat currence, the value of which an FRVA purports to maintain a stable reference to;and which is controlled by a central bank of any country[ies] or territory[ies] which are not subject to any sanctions in accordance with Federal AML-CFT Laws; as well as the status of legal tender; and which is required to be accepted within a given jurisdiction.
Issuers of FRVAs will have to ensure reserve assets, a pool of assets maintained in accordance Rule III.B of these FRVA Rules and as approved by VARA. Reserve Assets are not Client Money or Client VAs, as defined in the Compliance and Risk Management Rulebook.
The issuance of an FRVA is a Category 1 VA issuance and as such is a virtual asset (VA) Activity.
In addition VARA states that currencies of sanctioned countries or territories. VASPs may not have as a Reference Currency any currency issued by any country[ies] or territory[ies] which are subject to sanctions under Federal AML-CFT Laws.
VARA may, in its sole and absolute discretion, designate any VASP Licensed to issue an FRVA as a Significant FRVA Issuer at the time of issuing a Licence or anytime thereafter.
In designating a VASP as a Significant FRVA Issuer, VARA may consider all factors relevant to the VASP and/or the FRVA issued by the VASP, including but not limited to the number of holders of the FRVA; the value of circulating and/or outstanding supply of the FRVA; the value of the Reserve Assets maintained by the VASP; the number and value of transactions in the FRVA; whether the VASP and/or its affiliates carry out any other VA Activity[ies] and/or financial services in Dubai, or provide services similar to VA Activities and/or financial services in other jurisdictions; interconnectedness with licensed financial institutions and/or VASPs; and/or the business, structural and operational complexity of the VASP in relation to the FRVA issued by it.