The UAE has emerged as a hub for virtual asset regulation and Virtual Asset Service Providers (VASPs), beginning with the establishment of Dubai’s Virtual Asset Regulatory Authority (VARA). As the Web3 and crypto sectors expand in the UAE, VARA has increasingly emphasized stringent compliance requirements.
Recently, VARA appointed Sean McHugh as Senior Director of Market Assurance, highlighting their commitment to ensuring that VARA’s licenses adhere to top-tier compliance standards.
In a recent interview with Cryptopolitan, McHugh discussed his role at VARA and the significance of compliance with Dubai’s regulatory body.
McHugh brings extensive experience to VARA, having previously served as Global Chief Compliance Officer at Citadel Advisors, overseeing compliance programs across various financial sectors. He also held senior compliance roles at Goldman Sachs and began his career as a regulator at FINRA. This broad background in both internal compliance and regulatory frameworks made him a valuable addition to VARA.
Differences Between Digital Asset and Traditional Finance Compliance
When asked about the differences between compliance in digital assets and traditional finance, McHugh noted, “In my career, I’ve seen traditional finance evolve from being unregulated to a fully regulated sector globally. In contrast, the digital assets space is still developing, with technology and regulatory frameworks continuously adapting.”
He pointed out that technology and compliance programs are more intertwined in the virtual asset space compared to traditional finance.
Why VARA?
McHugh was drawn to VARA because it is the first regulator solely dedicated to virtual assets. He explained, “Dubai is leading the development of a global digital finance ecosystem. VARA’s proactive and engaging approach sets it apart from other regulators.”
He noted that VARA focuses exclusively on virtual assets, diving deeply into compliance details for VASPs, especially regarding customer protection, AML measures, and financial stability. Despite this focus, VARA’s compliance standards are aligned with the highest international norms.
The Importance of VASP Passporting
The concept of ‘passporting,’ initially used in traditional finance to describe the cross-border provision of services, is now being adapted for VASPs. McHugh emphasized VARA’s commitment to facilitating cross-border operations for VASPs by engaging with international regulators, sharing best practices, and forming committees. He noted, “We want VASPs to operate seamlessly across jurisdictions while ensuring they meet rigorous AML standards and customer protections.”
Stringent Compliance Requirements
VARA seeks robust governance models and strong compliance cultures. McHugh described the licensing process as demanding, with high standards set for VASPs. He stated, “We aim for our licenses to have real significance, which means that VASPs must meet rigorous standards, and a lot of the responsibility falls on them.”
He noted that VARA’s process involves thorough scrutiny, including questions about plans, scalability, cybersecurity strategies, and financial health. VASPs must be committed to compliance and ready to adapt if their submissions become outdated.
The Future of VASP Ecosystem and DeFi
McHugh highlighted VARA’s proactive engagement with DeFi platforms. He explained, “DeFi platforms are approaching us early to understand how VARA views their models and activities. We are ready to facilitate their regulation and licensing, with many already implementing technologies such as AML guardrails and KYC applications.”
In summary, VARA’s approach combines rigorous compliance with proactive engagement, positioning the UAE as a leader in virtual asset regulation as the sector continues to evolve.
Source: cryptopolitan.com
