Dubai issues new regulations on the marketing of Virtual Assets

What you need to know about the VARA Marketing Regulations

Following the issuance of Law No.4 of 2022 on the Regulation of Virtual Assets in February 2022 (the "DVAL") and the establishment of the Dubai Virtual Assets Regulatory Authority ("VARA"), on 25 August 2022, VARA issued Administrative Order No.1/2022 Relating to Regulation of Marketing, Advertising and Promoting Related to Virtual Assets (the "Marketing Regulation"). As the latest addition to the fast developing virtual assets regulatory framework within the United Arab Emirates ("UAE"), the Marketing Regulation is the first executive regulation issued by VARA and governs the promotion of virtual assets and virtual asset related activities in the Emirate of Dubai (excluding the Dubai International Financial Centre) ("Dubai").

In conjunction with the Marketing Regulation, VARA has also issued Administrative Order No.2/2022, which sets out details on the applicable fines and penalties in the event of non-compliance with the provisions of the Marketing Regulation (the "Penalties Regulation").

Whilst a comprehensive licencing framework for virtual assets is yet to be rolled-out in Dubai, VARA has launched a minimum-viable-product ("MVP") phase, whereby provisional 'MVP' licences are being issued to a select group of virtual asset industry participants, pending the release of further regulations by VARA that will establish a full-scale regime for the operation and licencing of virtual asset activities in Dubai.

Further to the commencement of the MVP phase, the Marketing Regulation seeks to establish clear guidelines for regulating virtual asset related communications and promotions in Dubai, that are supported by rigid enforcement standards and penalties for non-compliance.

Certain key considerations arising from the Marketing Regulation are summarised below.

General Restriction on Marketing

The Marketing Regulation imposes a general requirement (subject to certain exemptions outlined below) that all marketing relating to Virtual Assets or Virtual Asset Activities (both defined below) in Dubai, or which target residents of and/or customers within Dubai or the UAE must comply with all applicable laws, regulations and guidelines in the UAE, and (to the extent that such marketing relates specifically to Dubai) the provisions of the Marketing Regulation (the "VARA Marketing Restriction").

The definition of marketing under the Marketing Regulation is to be construed broadly, and is stated as including, (amongst other activities), all direct and indirect:

1. communications or publications of any information or promotional, influenced or sponsored materials across any traditional or new-age multi-media channel;
2. self-generated or third-party published social media posts, blogs, comments, endorsements, non-written communications, banners, billboards, videos or live-streams;
3. activities encouraging market participation in the Virtual Asset sector; and
4. paid or non-paid advertisements or publicity-driving content served across any platform or channel.

Authorisation and Licencing Requirements

It was highlighted in the Marketing Regulation that the issuance of any kind of Virtual Asset as part of Marketing or any other engagement purpose (including Virtual Assets with limited functionality or that simply grant the holders with access to specific facilities, services, activities or events) shall be classified as a Virtual Asset Activity, and will therefore be subject to licencing approval by VARA.

The above requirement echoes the provisions in the DVAL and emphasises the broad jurisdiction of VARA in regulating all activities relating to Virtual Assets in Dubai. However, it is worth noting that the Marketing Regulation does not expressly set out procedures for the receipt of VARA licencing approval as these are expected to be included in subsequent regulations issued by VARA.

Moreover, further to the VARA Marketing Restriction, any entity that is not already authorised by VARA to undertake Virtual Asset Activities in Dubai, but wishes to conduct any form of direct or indirect Marketing to residents and/or customers within Dubai relating to Virtual Assets or Virtual Asset Activities, is required to:

• seek authorisation from VARA prior to conducting any such Marketing;
• provide VARA with a valid permit to undertake Virtual Asset Activities, issued by the competent authority in the territory in which the entity is based; and
• comply with all requirements set out in the Marketing Regulation.

As such, it is expected that all Marketing activities which directly or indirectly target individuals in Dubai will likely require a level of engagement and authorisation from VARA. The inclusion of the requirement to provide VARA with a regulatory permit to carry out Virtual Asset Activities from the regulatory authority in which the entity is based may pose practical challenges given the relative novelty of Virtual Asset regimes globally. As such, this requirement could foreseeably pose a significant hurdle for entities wishing to engage in Virtual Asset related Marketing activities within Dubai, who are not already authorised in Dubai or within their home-jurisdictions.

Scope of Application

The VARA Marketing Restriction and the provisions in the Marketing Regulation are stated as applying to all domestic or foreign individuals or entities that are targeting residents and/or customers within the UAE or Dubai, in relation to the provision of Virtual Assets or Virtual Asset Activities.

However, an exemption applies in instances whereby an individual or entity: (i) is not conducting a Virtual Asset Activity in Dubai; (ii) any Marketing activity originates from outside of the UAE; and (iii) such Marketing activity does not target any residents of the UAE (the "VARA Marketing Exemption"). In such an instance, the individual or entity will not be required to comply with the VARA Marketing Restriction or the provisions of the Marketing Regulation. However, the Marketing Regulation provides that VARA reserves the authority to act in instances where it views that a Marketing activity poses a risk to its reputation as a regulator or to the reputation of the UAE or of Dubai with regards to its management of the Virtual Asset sector.

As a result of the VARA Marketing Exemption, it is expected that Marketing that occurs on a purely cross-border basis, with no directed efforts to target residents or customers in Dubai should typically fall outside of the scope of VARA and the Marketing Regulation. Although, this is subject to the broad caveat that VARA nevertheless has discretion to act, where necessary, for the protection of its regulatory regime and the UAE or Dubai Virtual Asset sector.

Specific requirements for the conduct of Marketing

Subject to the VARA Marketing Exemption, the following requirements (amongst others) must be met in order to carry out Marketing relating to Virtual Assets and/or Virtual Asset Activities in Dubai:

• Marketing must be fair and clearly identifiable as promotional in nature;
• Marketing must not mislead as to the real or perceived advantages of Virtual Assets nor should it imply an urgency to buy Virtual Assets or to avail of Virtual Asset Activities in anticipation of future gains, nor create a fear of missing out. Any investment decision must strictly be based on a customer's independent evaluation;
• Marketing must contain a prominent disclaimer as to the variability and volatility of the value of Virtual Assets and should not advocate that such investments are safe, low risk or have guaranteed returns;
• All paid content, i.e. the posting, publicising or otherwise presenting of content relating to Virtual Assets or Virtual Asset Activities on any media platform, in exchange for any form of remuneration or value in kind, must be clearly indicated to have been paid for;
• Individuals or entities conducting Marketing must retain a record of all relevant content and audience details for a minimum of two years from the date of last publication or editing. Such records must be made available to VARA upon request; and
• Marketing must comply with all applicable laws, regulations, guidelines or other rules applicable across the UAE and must comply with all Dubai laws relating to Marketing, data protection and consumer protection.

Entities licenced by VARA or who are otherwise seeking to Market to residents or customers situated in Dubai will be required to comply with the above requirements. The requirements are intended to address Virtual Asset related promotion activities, particularly ahead of the operationalisation of the VARA MVP licences, in order to protect consumers and safeguard community interests.

However, the requirement to retain content and audience details for a period of two years should be considered, in light of data protection laws such as the UAE Federal Decree-Law No. 45 of 2021 Regarding the Protection of Data Protection (the "FDPL"). Under the FDPL, entities that process personal data within the UAE are required to delete the personal data once the purpose of the processing has been fulfilled, unless such data is anonymised. However, this may be prove difficult to reconcile with the requirement under the Marketing Regulation, to retain data for two years and to make such data, including the relevant "audience details" available to VARA upon request, given that anonymisation, in a data protection context, is typically irreversible. As such, it remains to be seen how this requirement will interact with the FDPL, as well as similar data protection requirements in other jurisdictions.

Penalties

Upon the occurrence of an activity (including any physical or virtual events) by an individual or an entity that does not comply with the provisions of the Marketing Regulation, VARA retains the discretion to: (i) issue a 'cease and desist' notification in relation to the non-compliant activity; and (ii) call for the suspension of the relevant activity.

The Marketing Regulation provides that if VARA requires an 'event' to be suspended or cancelled, the individual or entity responsible for promoting, organising or hosting such event, must immediately publish an announcement to the public clearly stating that non-compliance with the Marketing Regulation was the reason for the relevant suspension or cancellation.

Failure to comply with the Marketing Regulation or the relevant remedial actions required by VARA can result in consequential penalties or fines, the full details of which are set out in the Penalties Regulation. Penalties for non-compliance include, amongst others: (i) fines of between AED 50,000 for minor offences, up to AED 500,000 for repeat violations; (ii) the revocation of any VARA-issued licences and approvals; (iii) the revocation/suspension of any commercial trade licences; and (iv) the immediate suspension of all marketing activities in Dubai for up to six months.

Concluding Remarks

The Marketing Regulation is the latest development to the UAE's emerging Virtual Assets regulatory regime. It seeks to establish a robust and consumer focused approach towards Virtual Asset related promotional activities and in doing so, protect the UAE's and specifically, Dubai's reputation as a progressive but conscientious regulator of Virtual Asset activities. Whilst a comprehensive regulatory and licencing framework for Virtual Assets in Dubai is expected to be set out in future regulations issued by VARA, however, with the commencement of the MVP phase and the issuance of provisional Virtual Assets licences, the Marketing Regulation should provide much-needed clarity on the promotion activities for market participants looking to engage in Dubai.

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