Understanding Dubai’s Virtual Assets Regulatory Authority (VARA) – Part 2 Corporate Governance for VASP’s

Introduction

In our previous article, we explored the process of company formation for Virtual Asset Service Providers (VASPs) under the Virtual Assets Regulatory Authority (VARA). Building upon that foundation, this article delves deeper into the crucial aspects of corporate governance that VASPs must adhere to. These governance principles are not merely ancillary; they are fundamental to ensuring the integrity, transparency, and effective operation of VASPs in the rapidly evolving virtual asset landscape.

Corporate Governance Structure

Competence

The cornerstone of any successful VASP is the competence of its leadership and staff. This section outlines the stringent requirements for Board members, Senior Management, and all employees. VASPs must implement robust policies to assess and ensure the qualifications of their personnel, considering factors such as academic background, professional certifications, industry experience, and involvement in professional organizations. This comprehensive approach to competence assessment safeguards the VASP’s operations and builds trust with clients and regulators alike. Regular training and development programs should be instituted to keep the staff abreast of the latest industry advancements and regulatory changes.

Segregation of Duties

Effective corporate governance hinges on the clear delineation of responsibilities within a VASP. This section explores the critical need to separate policy-making, supervisory, and operational functions. By maintaining this separation, VASPs can strengthen their internal controls, reduce the risk of errors or misconduct, and ensure that compliance and audit functions remain independent and objective. This segregation is particularly vital in areas such as asset management, financial operations, and risk assessment. Implementing a robust internal control system with appropriate checks and balances is essential to achieving this objective.

Conflicts of Interest

In the complex world of virtual assets, conflicts of interest can arise in various forms. This section provides a detailed framework for identifying, disclosing, and managing potential conflicts across all levels of the organization, from the Board to individual staff members. It emphasizes the importance of transparency with clients and the implementation of robust policies to handle conflicts when they occur, including the use of “Chinese Walls” and special conflict registers. Regular training on ethical standards and conflict management should be provided to all employees to promote a culture of integrity and accountability.

Information Disclosure

Transparency is paramount in the virtual asset industry. This section covers the VASP’s obligations regarding information disclosure to shareholders, stakeholders, and the public. It details the requirements for comprehensive website disclosures and the need for regular policy reviews to maintain alignment with industry best practices and regulatory expectations. VASPs must ensure that all disclosures are clear, accurate, and timely, thereby fostering trust and confidence among all stakeholders.

Group Governance

For VASPs operating as part of larger corporate structures, effective governance of subsidiaries is crucial. This section outlines the framework for managing relationships within a corporate group, ensuring that subsidiary operations align with the parent company’s standards while maintaining appropriate independence. Regular audits and reviews should be conducted to ensure compliance with group policies and regulatory requirements.

Insiders’ Transactions and Related Party Dealings

These sections address the sensitive areas of insider trading and transactions with related parties. They provide guidelines for monitoring and regulating such activities to prevent market abuse and ensure fairness to all stakeholders. The detailed procedures for obtaining approvals, maintaining transparency, and reporting to VARA are crucial for maintaining the integrity of the VASP and the broader virtual asset market. A robust compliance system should be in place to detect and prevent any form of insider trading or related party transactions that could harm the market or the firm’s reputation.

Loans to Board or Staff

The final section deals with the specific issue of loans to key personnel. It outlines the approval process and reporting requirements for such transactions, emphasizing the need for transparency and regulatory oversight to prevent potential abuses. Clear policies should be established to govern the granting of loans, ensuring that they are made on an arm’s length basis and do not compromise the integrity or financial stability of the VASP.

Conclusion

Corporate governance for VASPs extends far beyond mere compliance with regulations. It is a comprehensive framework designed to ensure the stability, integrity, and trustworthiness of entities operating in the virtual asset space. By adhering to these principles of competence, segregation of duties, conflict management, transparency, and ethical conduct, VASPs can build a solid foundation for sustainable growth and innovation.

The governance structures outlined in this article are not static; they must evolve with the rapidly changing virtual asset landscape. VASPs must remain vigilant, continuously reassessing and adapting their governance practices to meet new challenges and opportunities. This proactive approach to governance not only satisfies regulatory requirements but also positions VASPs as responsible, forward-thinking leaders in the financial technology sector.

As the virtual asset industry continues to mature, robust corporate governance will play an increasingly critical role in distinguishing reputable, well-managed VASPs from less scrupulous operators. By embracing these governance principles, VASPs can foster trust with clients, regulators, and the broader financial community, paving the way for wider adoption and integration of virtual assets into the global financial system.

In conclusion, effective corporate governance is not just a regulatory obligation but a competitive advantage. It provides the framework for sustainable growth, risk management, and ethical operation in the dynamic world of virtual assets. As we move forward, the VASPs that prioritize and excel in corporate governance will be best positioned to lead the industry into its next phase of development and innovation.

Published by Hassam Raoon