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Dubai’s Virtual Assets Regulatory Authority has created a dedicated permission for entities that move crypto assets between wallets, exchanges and, increasingly, tokenised representations of real-world assets. The VARA transfer and settlement services license grants firms the legal authority to accept virtual assets from a customer, transmit them to another address, settle obligations arising from spot trading, and interface with payment or banking rails to finalise off-chain leg balances. Providers that handle large payment flows, operate white-label exchange gateways, or integrate with merchant checkout modules cannot lawfully operate in the emirate without this license.
This in-depth guide explains the scope of the permission, which business models it captures, how capital requirements scale with daily flow, the technology governance benchmarks VARA expects, and the application workflow from pre-consultation to final approval. It also explores ongoing conduct rules, cyber-resilience testing, client-asset safeguards, and the sanctions imposed on firms that transmit tokens without authorisation. Finally, the article positions Dubai within the wider global landscape and sets out how Aston VIP can manage the heavy lifting so founders focus on revenue rather than red tape.
What constitutes transfer and settlement services under VARA
The authority defines transfer as accepting a virtual asset from one person, network or smart contract and sending it, whether domestically or cross-border, to another predetermined destination. Settlement refers to the discharge of payment obligations in virtual assets or their fiat equivalent that arises from a previously agreed trade or service. The definition of transfer and settlement services under VARA embraces three broad operations.
First, custodial providers that allow retail users to send stablecoins from a hosted wallet to an external address. Second, crypto-payment processors that receive tokens at point of sale and remit converted AED or US dollar proceeds to merchants. Third, institutional settlement agents that clear bilateral obligations between exchanges, prime brokers or market makers by netting positions and moving collateral on-chain.
The permission does not cover simple peer-to-peer wallet software where the provider never touches private keys, nor does it capture purely decentralised smart contracts where no central counterparty can halt or reverse transfers. However, once a business markets any level of custodial or intermediation layer, the license becomes mandatory for transfer and settlement services under VARA.
Why Dubai introduced a distinct license for post-trade functions
VARA recognises that the greatest systemic risk in virtual-asset markets stems from post-trade plumbing rather than price discovery itself. High-profile failures, from Mt. Gox in 2014 to FTX in 2022, exposed gaps in segregation, reconciliation and recoverability of client balances. Dubai’s policymakers therefore decided that wallet-to-wallet transmission and obligation settlement deserve a standalone supervisory approach, richer than generic money-service rules yet separate from exchange order book conduct.
The framework forces providers to demonstrate real-time solvency, maintain rigorous hot-wallet limits, and employ settlement finality logic that aligns with banking standards. By lifting operational resilience, the regime hopes to attract institutional volume previously hesitant to route through opaque offshore facilitators.
Core activities captured by the VARA transfer and settlement services license
Custodial transfers
Any provider that holds private keys on behalf of a user, even temporarily, and initiates blockchain transactions on the user’s instruction falls squarely within the perimeter. Typical examples include mobile-app brokers that allow one-tap USDT withdrawals or custodians that manage multi-sig enterprise wallets for corporate treasuries.
Crypto-to-fiat settlement for merchants
Payment gateways that integrate with e-commerce platforms, quote real-time conversion and, within agreed settlement windows, remit fiat currency to merchants, must obtain the license. VARA regards the off-chain leg as inseparable from the on-chain leg, meaning the entire flow is supervised.
Institutional clearing and netting
Prime brokers often centralise client exposures across multiple exchanges, then send netted settlement instructions in USDC or wrapped Bitcoin. Such agents act as transfer and settlement intermediaries and therefore require authorisation.
OTC trade settlement
Over-the-counter desks that broker large block trades and directly deliver tokens to clients after receiving fiat wire transfers are also in scope.
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Activities outside the permission
Several edge cases remain exempt. Software developers who merely provide non-custodial wallet code, blockchain explorers, messaging relayers, and pure smart-contract routers with decentralised governance do not need a license, provided they do not market themselves as middlemen or accept customer funds.
Minimum capital and prudential framework
VARA calibrates capital to the average volume of client assets held overnight. Rather than fixed tiers, it uses a sliding scale.
- Firms that never exceed AED 50 million in daily client-fund float must hold paid-up capital of AED 1 million.
- Once float surpasses that threshold and remains below AED 250 million, capital jumps to AED 5 million.
- At float above AED 250 million but under AED 1 billion, capital rises to AED 15 million.
- For transfer agents and settlement houses whose average float exceeds a billion dirhams, VARA sets a bespoke requirement, typically ten percent of projected peak float or AED 40 million, whichever is higher.
Capital must be unencumbered equity, free from redemption rights, and retained onshore in the UAE banking system. A capital buffer review occurs annually or sooner if rolling float increases by more than twenty percent over a ninety-day window.
Segregation and daily reconciliation
Licensees must keep client virtual assets separate from proprietary holdings via distinct wallet clusters, each labelled within an immutable internal ledger. Hot-wallet balances cannot exceed limits defined in a board-approved treasury policy, typically capped at ten percent of total client assets unless justified by operational need. The remainder must reside in cold wallets with multi-party computation security. Daily reconciliations compare blockchain balances with ledger entries.
"Any discrepancy larger than AED 1,000 in aggregate or affecting more than ten clients must be reported to VARA within two working days."
Technology governance and cyber controls
The regulator mirrors best practice from the DFSA Tech-Risk Rulebook and international standards like NIST CSF. Key expectations include:
- Use of hardware security modules or MPC solutions certified to FIPS 140-2 Level 3 or above.
- Dual-control signing for all withdrawals, with escalation to C-suite authorisers for transfers greater than AED 500,000.
- Annual penetration tests by an ISO 27001-accredited vendor, plus a red-team simulation at least every eighteen months, complete with social-engineering attempts.
- Continuous monitoring for chain reorganisations, double-spend attempts and dusting attacks.
- Incident-response playbooks assigning clear responsibilities and notification timelines, including a five-hour maximum window for initial regulator notice after discovering material breach.
- Data-residency compliance, meaning key client-identity datasets and signing metadata must rest on servers physically located in the UAE or within a VARA-approved jurisdiction with equivalent data-protection standards.
Fit-and-proper criteria for senior management
Chief executive officers, chief operating officers, chief compliance officers and the head of information security must pass VARA’s fitness and propriety assessment. The authority examines integrity, competence and financial soundness. Executives submit detailed CVs, professional references, police clearance and bankruptcy declarations. VARA demands at least five years’ experience in payment infrastructure, securities settlement or crypto-asset operations. Where senior leaders come from purely entrepreneurial backgrounds, firms must supplement the team with advisers possessing traditional post-trade expertise.
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Application process in detail
Preliminary engagement
Prospective providers request a non-binding consultation with VARA’s Authorisation Team, delivering an executive summary that covers business model, client target markets, projected volumes and anticipated balance-sheet structure. Feedback typically arrives within two weeks.
Formal dossier submission
The full package includes:
- Regulatory business plan with three-year revenue projections, cash-flow forecasts and stress-scenarios.
- Governance charters, internal-audit scope and risk-management framework.
- Comprehensive technology architecture map, identifying critical third-party vendors and on-chain custody methods.
- Draft client-asset segregation policy and reconciliation procedures.
- AML and know-your-transaction manuals, featuring chain-analysis provider integration.
- Data-protection impact assessment.
- Insurance quotation or binder for professional-indemnity and cyber risk.
- Capital-adequacy calculations referencing expected float.
- Personal questionnaire for each controlled function holder.
Case-officer assessment
VARA assigns a reviewer who issues rounds of questions. Clarifications cover everything from hot-wallet thresholds to the random-number source used by signing algorithms.
Senior-management interview
Key officers join an in-depth session, often lasting three hours, explaining fail-over procedures, cross-border sanctions screening and token-blacklisting capability.
In-principle approval
Once the application meets baseline standards, VARA grants conditional approval. The firm must:
- Incorporate its UAE entity and deposit the capital.
- Procure office premises.
- Activate insurance cover.
- Complete data-residency migration if using foreign cloud.
- Run a final end-to-end settlement dry-run witnessed by an external auditor.
Final license
Evidence of satisfying every condition leads to issuance of the VARA transfer and settlement services license, enabling live operations.
"The application process ranges from four to six months for straightforward models targeting institutional clients, and up to nine months when retail flows or novel DeFi integrations complicate the risk assessment."
Ongoing compliance obligations
Transaction monitoring
Every transfer undergoes automated screening for sanctions and risk scoring. High-risk transactions trigger human review and potential suspicious transaction reporting to the UAE FIU and VARA. Firms must document thresholds, typologies and escalation chains in their AML manual.
Market-abuse controls
Although transfer firms do not set prices, they can facilitate wash trading or layering if colluding accounts bounce tokens rapidly. VARA compels licensees to implement pattern-recognition logic that flags unusual loop transfers across related IP addresses.
Periodic reporting
Quarterly prudential returns show average client-asset float and capital ratios. A half-yearly technology-risk report summarises uptime, incident counts and security enhancements. Audited financial statements, accompanied by an assurance opinion on custody controls, land within four months of year-end.
Senior-management accountability
VARA expects documented board meetings at least once a quarter, featuring discussion of reconciliation breaks, cyber incidents and AML metrics. Directors must sign an annual attestation that systems and controls remain adequate.
Penalties for non-compliance
VARA wields a ladder of sanctions. Minor administrative lapses such as late filings incur on-the-spot fines of AED 50,000. Repeated hot-wallet limit breaches or failure to reconcile daily can draw penalties exceeding AED 1 million and public reprimands. Serious offences involving misappropriation of client assets or wilful facilitation of sanctioned transfers bring licence suspension, revocation and referral to Dubai Public Prosecution.
How VARA compares to other jurisdictions
Dubai’s regime mirrors core principles of New York’s BitLicense, especially regarding segregation and capital. However, VARA offers clearer float-linked capital bands, whereas New York’s capital remains entirely supervisory discretion. Singapore’s Payment Services Act requires a broader range of firms to gain licences but imposes lower base capital for standard payment institutions than VARA does for entry-level transfer agents. Meanwhile, the EU’s upcoming MiCA sets pan-European rules for e-money tokens and asset-referenced tokens yet segments custody, trading and settlement under a single authorisation rather than Dubai’s modular approach. Overall, VARA seeks to balance agility with institutional grade prudence, avoiding one-size-fits-all.
Operational tips for licence holders
Automate ledgering from day one
Hand-maintained spreadsheets cannot withstand regulator scrutiny. Use double-entry accounting integrated with chain explorers.
Limit hot-wallet drift
Deploy scripts that sweep excess token balances into cold storage at set intervals.
Segregate developer and production keys
Engineers value flexibility but any unreviewed push can trigger catastrophic loss.
Rotate insurance annually
Market appetite for crypto risk changes quickly; start renewal discussions six months before expiry.
Embrace chain analytics
Regulators want demonstrable capacity to flag illicit flows beyond sanctions lists, including mixers and darknet markets.
Document vendor dependencies
When using an external MPC provider or cloud HSM, record contract SLAs and contingency replacements.
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Firms must implement rigorous cybersecurity protocols, including penetration testing, incident response plans, UAE-based data residency, and dual control for withdrawals.
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The application process includes a business plan, technology blueprint, risk frameworks, interviews, and a final system dry-run, typically taking 4–9 months depending on business complexity.
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Ongoing obligations include transaction monitoring, AML controls, pattern-based market-abuse detection, and periodic reporting of prudential, financial, and cybersecurity metrics.
Future regulatory developments
VARA has indicated that advanced settlement providers leveraging cross-chain bridges will soon need to demonstrate additional controls over smart-contract risk and oracle manipulation. The authority is also studying ISO 20022 messaging for token transfers to align with traditional payment standards. Early movers who embed these enhancements will find licence variations swift when rules crystallise.
Aston VIP: Your partner for seamless licensing and robust operations
At Aston VIP we combine regulatory law, cybersecurity engineering and post-trade operations expertise. Our licensing team crafts the regulatory business plan, capital model and technology-risk documentation that resonate with VARA reviewers. Parallel engineers configure compliant custody infrastructure, integrating UAE-hosted HSMs and automated reconciliation dashboards. Once the licence arrives, our managed compliance service delivers quarterly returns, incident-response drills and board-level reporting.
Whether you are a payment gateway expanding into crypto checkout, a prime broker settling institutional flows, or a start-up building the next stablecoin transfer rail, Aston VIP stands ready to convert regulatory complexity into competitive edge. Contact us for a discovery workshop, and let us chart your roadmap to a fully compliant, globally trusted VARA transfer and settlement operation.
