Skip to content 
Dubai’s Virtual Assets Regulatory Authority has carved out distinct permission sets for each activity in the fast-evolving digital-asset economy. Among these specialised permissions, the VARA transfer and borrowing services license sits at the crossroads of day-to-day on-chain payments and the credit market that transforms idle tokens into productive capital. Whether you plan to operate an institutional payment rail, a DeFi-style over-collateralised lending desk or a bespoke treasury-management platform, this VARA license defines the guardrails within which you can move client assets and extend or facilitate credit. The following guide explains the licence scope, prudential rules, capital mechanics, technology expectations, risk controls and phased application route. All things that, together, create a gateway for compliant growth in Dubai’s virtual-asset sector.
How VARA positions transfer and borrowing services within its regulatory framework
The original Law No. 4 of 2022 establishes VARA’s authority to classify individual virtual-asset activities. Transfer services and borrowing services within VARA are treated as complementary but distinct components.
Transfer services
These services cover the receipt or initiation of instructions to move virtual assets between wallets. Or, between an off-chain ledger and an on-chain address at the direction of a client or counterparty. In practice, that extends to payment processors, remittance channels, institutional treasury products and settlement layers used by exchanges.
Borrowing services
On the other hand, these services focus on arranging, facilitating or directly providing credit in the form of virtual assets. The scope includes over-collateralised lending desks, repo-type arrangements that reference stablecoins, liquidity-pool participation undertaken on behalf of clients and margin-lending engines that fund derivatives platforms. Any service that creates a repayment obligation denominated in or collateralised by virtual assets falls under the rulebook.
By bundling transfer capability and credit capability, VARA ensures that firms managing both cash-like flows and leveraged exposures meet a unified set of benchmarks for risk management, insurance, cyber-security and liquidity buffers. Firms looking only to process payments can apply for the transfer subset alone. Firms combining payments with lending must meet the higher bar associated with the borrowing component.
Why the licence matters for institutional adoption
Global asset-management executives cite two hurdles when allocating to virtual-asset strategies: operational risk during token movements and counter-party risk when pledging digital collateral. A VARA transfer and borrowing services license tackles both.
First, clients obtain legal certainty that segregated wallets, travel-rule disclosures and reconciliations occur under government supervision. Second, uniform lending-book rules protect depositors, borrowers and liquidity-pool members by setting loan-to-value limits, collateral-call procedures and recovery hierarchies. This structure mimics the established playbook in securities finance, creating a bridge between traditional prime broking and its crypto equivalent.
Prudential capital, liquidity and insurance thresholds
Base capital
Begins at AED 15 million (around USD 4 million) for entities offering transfer services alone, rising to AED 25 million (roughly USD 6.8 million) when borrowing or lending activity is added. VARA expects the capital to be fully paid and held in cash or near-cash, not token form.
Risk-weighted capital
Kicks in once client balances surpass USD 250 million. Transfer exposures receive a lower weighting than unsecured lending exposures, which attract a multiplier similar to Basel’s corporate-loan risk weight. Borrowed assets matched by highly liquid stable-coin collateral receive partial netting relief, but only when the custodian and oracle arrangements meet pre-approved standards.
Liquidity buffers
Liquidity buffers require firms to maintain one month of projected gross outflows in high-quality liquid assets. While short-dated US Treasury bills qualify, synthetic stablecoins or algorithmic tokens do not.
Insurance
Any insurance must cover at least ten per cent of average client balances for theft, internal malfeasance, human error and smart-contract failure. Policies have to be underwritten by insurers on VARA’s accredited list, and any deductible exceeding AED 500,000 must itself sit in a restricted cash account.
Our working hours: Monday to Friday, 9 AM – 6 PM GMT+4
Board composition, key persons and segregation of duties
A VARA-licensed transfer and borrowing firm needs a minimum three-person board, including a chair who is an independent non-executive. One director must possess substantive conventional banking or payment-processing experience, while another must demonstrate hands-on crypto wallet-security expertise.
Senior management roles include:
- A resident Chief Executive Officer who has led a regulated payments or lending institution.
- A Chief Operations Officer with direct responsibility for payment rails, liquidity routines and back-office reconciliations.
- A Chief Risk Officer, mandatory when borrowing activity exceeds USD 100 million, who oversees credit-risk models, collateral valuation, haircuts and stress tests.
- A Chief Information Security Officer belonging to the top tier of corporate hierarchy, reporting directly to the board.
- A Chief Compliance and Money-Laundering Reporting Officer who must not be the CEO or the CISO.
"Dual hatting is discouraged, especially between risk and revenue-generation functions, because lending desks can create implicit pressure on collateral valuation."
Minimum technology, custody and smart-contract controls
Wallet architecture must separate client addresses from house addresses and must use multi-signature or multi-party computation schemes with at least two-out-of-three control for hot wallets and three-out-of-five for cold assets.
Payment API gateways need rate-limiting, IP whitelists and at least two independent intrusion-detection systems. Routine penetration tests and code reviews of smart contracts that facilitate automated borrowing must be documented.
Collateral management involves real-time on-chain or oracle-based pricing feeds. VARA insists on diversification of data providers and automatic margin-call triggers when collateral value falls below eighty per cent of the loan value. Firms must demonstrate the logic in their liquidation bots and test fail-safes under market stress scenarios.
Disaster-recovery facilities must keep a redundant signing environment within another UAE emirate or an OECD country with an extradition treaty. Recovery-time objectives cannot exceed four hours for the payment ledger and twenty-four hours for loan records and collateral custody.
AML, sanctions filtering and travel-rule compliance
Virtual-asset transfers face the same screening obligations that apply to fiat remittances under UAE Federal AML Law No. 20 of 2018. Each new customer undergoes KYC verification, including beneficial ownership and source-of-wealth checks. Every outgoing transfer above USD 1,000, when destined for another Virtual-Asset Service Provider, must be accompanied by originator and beneficiary details embedded in an IVMS101-compatible message. VARA requires that firms demonstrate they can transmit and receive travel-rule data within five seconds of chain broadcast for hot-wallet settlements.
Loan origination triggers additional “know-your-customer-borrower” analysis. Stable-coin loans over USD 50,000 require enhanced due-diligence measures, including income or balance-sheet verification for corporate borrowers. When collateral consists of privacy-focused tokens, VARA demands stricter look-through and can impose a one-hundred-per-cent loan-to-value haircut, effectively disallowing such assets unless borrowers provide supplementary collateral in transparent tokens.
Get the most relevant information about business life in Dubai
Global competitive landscape: Where Dubai’s regime fits
New York’s BitLicense covers custody and transmission but forbids lending unless the firm secures a separate trust charter, making expansion costly. Singapore’s MAS Licence for “Digital Payment Token Services” allows transfers but explicitly disallows any token lending until further notice. The Hong Kong Securities and Futures Commission channels lending activity into its Type 9 asset-management regime and applies Basel-like capital ratio rules, often pushing start-ups toward a banking license. Against that backdrop, VARA’s consolidated transfer and borrowing permission offers clearer, one-stop coverage. International players appreciate being able to operate a payments rail and a credit desk under a single supervisory relationship instead of juggling multiple licences.
Reporting obligations and supervisory engagement
Each VARA-licensed transfer and borrowing firm submits monthly metrics, broken down by:
- Total value of client transfers processed.
- Largest single-client hot-wallet balance.
- Average daily outstanding loans, collateral type and weighted average loan-to-value.
- Counter-party exposures arising from rehypothecation (if permitted under client agreement).
- Change in insurance coverage or provider.
A full audited financial statement under IFRS is required within four months of year-end. A separate attestation by a technology audit firm must confirm that wallet signatures match customer ledger balances as of the balance-sheet date.
Supervisory on-site visits typically follow a two-year cycle, but VARA retains power to initiate thematic reviews at shorter notice. Breaches of transfer-or-borrowing limits trigger mandatory incident reports within seventy-two hours.
"Unauthorised wallet movements, attempted key compromises or liquidation-engine failures must be reported within twenty-four hours."
Application timeline, from exploratory meeting to final licence
Pre-application discovery
The founders present a ten-page deck outlining business model, technology stack and staffing to VARA’s Business Engagement team. Indicative capital and insurance guidance comes back in two to three business days.
Letter of Intent and fee
Submission of a formal letter alongside the non-refundable application fee unlocks a secure portal for documentation uploads.
Regulatory business plan
Often exceeding sixty pages, this document covers revenue projections, target markets, risk analysis, key-person bios, organisational charts and strategic partnerships.
Technical blueprint
Separate attachments detail wallet protocols, payment gateways, collateral-management engines and smart-contract designs. Flow diagrams and code-module summaries are recommended.
First review cycle
VARA issues clarifying questions on AML controls, travel-rule messaging, insurance gaps and credit-risk formulas, typically within fifteen business days.
Site inspection
Prior to an in-principle approval, the technology team conducts an on-premise or virtual examination of HSM serial numbers, cold-storage vault layouts and API penetration-test results.
In-principle approval letter
Conditions usually include incorporation of the local entity, deposit of paid-up capital, proof of executed insurance policies, office lease and onboarding of nominated senior managers.
Final submission
Evidence of each completed condition is uploaded, leading to the issuance of the Financial Services Permission and public registry entry.
A straightforward transfer-only applicant can complete the journey in four to six months. Adding borrowing services, especially when smart-contract-based liquidity pools are involved, can extend the process to nine months, depending on technology-audit iterations.
Practical challenges and mitigation tips
Balancing hot-wallet capacity with insurance deductibles
Large merchants demand near-instant settlements, yet insurance deductibles rise sharply when hot-wallet thresholds cross USD 10 million. Successful applicants compromise by configuring dynamic sweep rules: funds above the daily average automatically migrate to warm wallets protected by lower-frequency but higher-threshold multi-sig approvals.
Managing oracle risk in collateral valuations
VARA tolerates on-chain oracles but requires fall-back pricing feeds. Custodians combine Chainlink for primary data with API-based back-ups from reputable exchanges. Any deviation greater than two per cent between feeds freezes the loan book until discrepancies resolve.
Avoiding concentration in single stable-coin issuers
Borrowers often pledge stable-coins as collateral. VARA expects diversification. Institutions therefore set portfolio caps so that no single stable-coin exceeds forty per cent of total posted collateral. Some lenders introduce rolling haircuts that increase as issuer share breaches set thresholds.
Bank-account hurdles for settlement funds
Local banks scrutinise crypto flows. Early engagement is essential. Applicants share their in-principle approval, compliance frameworks and transaction-monitoring scorecards with banking partners months before go-live dates.
-
All outgoing transfers over USD 1,000 must comply with the FATF travel rule, and privacy token loans face strict collateral rules and potential full-value haircuts unless backed by additional transparent assets.
-
Monthly reports to VARA must detail transfer volumes, client wallet balances, loan book composition, and counterparty exposures, with additional tech and financial audits due annually.
-
The licensing process includes site inspections, code reviews, stress-testing collateral protocols, and verifying wallet controls, typically lasting 4–6 months for transfer-only firms and up to 9 months with borrowing components.
-
Compared to global regulators like New York’s BitLicense and Singapore’s MAS, VARA offers a consolidated, clearer, and more scalable framework for firms combining digital payments with lending.
Aston VIP’s role in helping you secure a VARA transfer and borrowing services license
Converting complex regulatory language into operational reality calls for multidisciplinary expertise. Aston VIP provides exactly that. Our consultants begin by mapping your revenue targets against VARA’s capital equations, ensuring you meet prudential thresholds without over-allocating scarce equity. Cyber-security specialists then validate wallet schematics, design segregation protocols and arrange independent penetration testing. Legal advisors draft AML manuals, travel-rule workflows and client-asset protection statements that resonate with VARA reviewers.
During the application stage, Aston VIP manages portal submissions, coordinates Q&A cycles and coaches your senior managers for fit-and-proper interviews. Once licensed, we offer outsourced MLRO, risk and cyber-security officer services so you can keep overheads flexible while demonstrating continuous governance. Our Treasury Advisory desk helps structure liquidity buffers in US Treasuries, aligning yield goals with regulatory haircuts.
From drafting the very first business-model canvas to running yearly SOC 2 readiness reviews, Aston VIP remains beside you, turning each compliance requirement into a structuring advantage that wins the confidence of institutional clients and banking partners alike. Engage our Dubai team today and transform your vision for seamless, credit-enabled virtual-asset payments into a secure, fully regulated reality under one of the most forward-looking regimes in the world.
