Key points of the “VARA Broker-Dealer Services Rulebook (Updated May 2025)”

Context: Dubai’s Virtual Assets Framework (VARA)
Dubai has positioned itself as a globally leading regulatory hub for virtual assets, emphasising governance, market integrity, investor protection, and FATF-aligned compliance. The Virtual Assets Regulatory Authority (VARA) oversees all Virtual Asset Service Providers (VASPs) in the emirate outside DIFC, implementing rulebooks covering corporate governance, market conduct, technology, and activity-specific requirements.

This Broker-Dealer Services Rulebook applies to any VASP licensed to provide broker-dealer functions—order execution, trade routing, principal dealing, advisory services, and, if authorised, margin trading and distribution services. It complements all other VARA rulebooks and cumulatively applies where a VASP performs multiple VA Activities.

Original source: VARA_EN_226_VER20250519

1. Governance, Policies & Public Disclosures (Part I)

1.1 Mandatory Internal Policies

VASPs must maintain robust written frameworks covering:

Prevention and detection of market offences (market manipulation, abusive practices).
Order execution and routing controls.
Ensuring continuous client access to their assets, even during market stress events.
Annual mandatory review of the effectiveness of all policies.

1.2 Public Disclosures (High Transparency Standards)

VASPs must disclose on their website:

All conflicts of interest and how they are managed.
Data privacy, whistleblowing, and client complaint procedures.
For each listed/quoted Virtual Asset:
- Token metadata (symbol, issuance date, market cap, FDV).
- Circulating supply as % of max supply.
- Smart contract audit status.
- Historical high/low data and largest drawdowns.
Pricing methodologies and routing practices.
Whether the VASP custodies assets for other VASPs.
Client asset protection arrangements.
Referral/introducer arrangements and monetisation.
Third-party accounts or custodial relationships.
Past legal convictions of senior management or board members.

2. Trading & Execution Requirements (Part II)

2.1 Best Execution – Core Principle

VASPs must achieve the best possible result for clients considering:

Price, cost, speed, likelihood of execution/settlement.
Market liquidity, volatility, spreads, number of markets checked.
Specific client instructions (no obligation beyond explicit routing requests).

Key point: This applies to all client orders unless:

Client is another licensed VASP or institutional/QI and requests a quote executed at the broker’s discretion and the broker does not deal as principal.

2.2 Execution Controls & Conflicts

Requirements include:

Documented controls to manage conflicts between client orders vs. VASP interests.
Burden of proof on the VASP when executing off-market.
Transparent disclosure of fees retained by the VASP for each trade.
Prohibition on receiving payment for order flow (PFOF) or incentives for routing trades.

2.3 Principal Trading

VASPs may deal as principal—including riskless principal—only if they still meet best-execution requirements.
Use of Client Money or Client Virtual Assets for principal trading is prohibited.

2.4 Advisory Services

VASPs providing Broker-Dealer Services may also offer Advisory Services, but must comply with:

Additional capital/prudential requirements.
VARA’s Advisory Services Rulebook.

3. Margin Trading Framework (Part III)

Margin trading is permitted only with explicit VARA authorisation and requires strict conditions.

3.1 Approval Conditions

Before granting approval, VARA assesses:

Margin Trading Agreement templates.
Margin calculation methodologies.
Collateral management procedures.
Escalation procedures for margin calls.
Liquidity of collateral assets.
System inspection and technical demonstrations.

VARA can at any time instruct VASPs to:

Suspend margin trading.
Close positions.
Raise margin requirements.

3.2 Operational Obligations

VASPs must:

Assess suitability of clients before opening margin accounts.
Segregate all margin accounts.
Prevent cross-funding between clients.
Issue early warning notifications when margin levels fall.
Liquidate positions if margin not restored.
Maintain 8-year records.

3.3 Prudential Limits

Margin-funding capital must count toward Operational Exposure.
Single-client credit exposure capped at 10% of total margin-related funds.
Acceptable collateral:
- The financed VA, fiat, or approved USD/AED-pegged VA.
- Additional VAs allowed only in cases of falling valuations or prolonged trading suspensions.

3.4 Margin Trading Agreement Requirements

Must include:

Full explanation of risks (loss of funds, forced liquidation, increased margin requirements).
Financing terms and rate-change mechanisms.
Fees, charges, dispute resolution.
Conditions for liquidation and client obligations post-liquidation.

Practical implication:
VARA’s margin regime is conservative and structured similarly to MiFID II-type leveraged trading frameworks, with substantial investor-protection emphasis.

4. Licensed Distribution Services (Part IV)

This section applies when a Broker-Dealer VASP also performs token issuance/placement/distribution services for Issuers.

4.1 Core Principle – Assurance of Quality

The VASP must ensure “beyond all reasonable doubt” the quality of both the Issuer and the Virtual Asset. This is a high due-diligence bar.

Quality assessment must cover:

Consumer protection and anti-misinformation safeguards.
Strict AML/CFT and sanctions compliance.
Zero tolerance for fraud, illicit activities, or market abuse.
Cybersecurity and technical resilience of the token.
Compliance with all VA Issuance Rulebook standards.

4.2 Due Diligence Requirements

For Virtual Assets

Must verify:

Compliance with VASP’s own VA Standards.
Whitepaper compliance.
Risk Disclosure Statement compliance.
Investor classification rules.
Smart contract audits fully remediated.

For Issuers

Must confirm compliance with:

Issuer obligations under the VA Issuance Rulebook.
Client due-diligence requirements under VARA’s Compliance & Risk Management Rulebook.

4.3 Mandatory Disclaimer

All offering materials must state:

“VARA has not made any representation and does not provide any warranties regarding any Issuer or Virtual Asset …”

This prevents mischaracterising VARA submissions as approvals.

4.4 Submission Process

VASPs must submit:

Whitepaper
Risk Disclosure Statement
Declaration of compliance
Due diligence reports
A 15-working-day Submission Period begins, during which VARA may object or request amendments. No distribution may begin before period expiry.

4.5 Ongoing Monitoring