Legal Insights
Last updated: 24 March 2026
The Sponsored VASP regime represents a strategic effort by VARA to support innovation, scalability, and broader market inclusion within a tightly regulated environment. It enables smaller, earlier-stage or resource-constrained virtual asset operators to participate in the regulated ecosystem under the supervision and regulatory infrastructure of a fully licensed VASP.
Dubai’s Virtual Assets Regulatory Authority (VARA) has introduced a significant addition to its licensing framework through the Sponsored Virtual Asset Service Provider (VASP) model, formalized in Part VII of the Compliance and Risk Management Rulebook (updated as of May 19, 2025).
TL;DR
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- Sponsored VASP regime allows unlicensed firms to operate under a VARA-licensed sponsor.
- Regulated Sponsor holds full legal and compliance responsibility.
- Requires common control structure between sponsor and sponsored entity.
- VARA approval is mandatory before any operations begin.
- Strict compliance across multiple rulebooks (company, risk, tech, market conduct).
- Capital requirements stack per each Sponsored VASP.
- Full segregation of data, accounts, and client funds required.
- Clear marketing disclosures: cannot present as independently licensed.
- Ongoing audits, reporting, and oversight obligations by sponsor.
- Ideal for startups, venture studios, and scalable Web3 ecosystems in Dubai.
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In this article NeosLegal crypto lawyers outline the core regulatory obligations and framework governing Sponsored VASPs.
Sponsored VASP regime: Regulatory Objective and Structure
The Sponsored VASP model allows entities that are not independently licensed by VARA to carry out certain virtual asset activities under the umbrella of a “Sponsoring VASP.”
The Regulated Sponsor must be an entity already holding a valid VARA license and will be held fully accountable for the sponsored entity’s compliance with all applicable regulations.
This structure is intended to lower the entry barriers for new market entrants without compromising the integrity of VARA’s oversight regime. It creates a pathway for novel business models and experimental ventures to operate legally within the UAE while ensuring that the overall risk to the system remains contained through centralized oversight.
A parallel can be drawn to the UK’s Financial Conduct Authority (FCA) Appointed Representative regime, though the framework introduces stricter safeguards.
One of the key distinctions is that VARA requires the Regulated Sponsor to have a direct controlling relationship with the Sponsored VASP. This requirement is designed to address weaknesses observed in other jurisdictions, where regulators have limited visibility over appointed representatives.
VARA also reserves the right to refuse any arrangement it considers anti-competitive or harmful to market integrity.
Venture Studios and strategic ecosystem builders can be ideal candidates for becoming Regulated Sponsors. These firms can obtain a license from VARA and extend regulatory coverage to their portfolio companies.
Such models may become increasingly common as institutional capital seeks to nurture emerging blockchain-native startups in a compliant environment.
Licensing and Pre-Approval Requirements
Obtaining VARA’s approval to operate as a Regulated Sponsor and to establish each Sponsored VASP relationship is a substantive regulatory process, not an administrative formality. The framework imposes a sequenced set of structural, contractual, and governance requirements that must be satisfied before any application reaches VARA, and several of these involve decisions that are difficult or costly to reverse.
Common control and corporate structure
The threshold eligibility condition is one of common control: the Regulated Sponsor must be the Controlling Entity of the proposed Sponsored VASP, or both must share the same Controlling Entity. This is non-negotiable. Beyond control, the Sponsored VASP must be incorporated as a legal entity in one of the legal forms approved by a commercial licensing authority in the Emirate. Not all Dubai free zones support this. Only zones with established VARA frameworks are capable of supporting entities carrying out regulated virtual asset activities.
Due diligence on the Sponsored VASP
Before approaching VARA, the Regulated Sponsor must conduct detailed due diligence on the proposed Sponsored VASP, assessing and documenting that it is fit and proper, financially stable, and suitable for the specific VA Activities it intends to carry out. VARA will assess the quality of this due diligence as part of its application review. The Regulated Sponsor must also confirm that the proposed arrangement does not contravene Federal Competition Laws and will not create an anti-competitive or monopolistic position in the market.
The written agreement
Prior to submitting any application, the Regulated Sponsor and Sponsored VASP must execute a legally binding written agreement. This is a regulatory requirement and will be scrutinised by VARA.
The Rulebook specifies that the agreement must address, at minimum:
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- the scope of permitted VA Activities;
- liability apportionment for areas not prescribed by VARA;
- clear termination terms;
- audit rights in favour of the Regulated Sponsor;
- and an obligation on the Sponsored VASP to report regularly on its compliance with the Compliance and Risk Management Rulebook.
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Responsible Officer
Before submitting the application, the Sponsored VASP must identify and appoint a Responsible Officer, a sufficiently senior individual who will be personally accountable for the Sponsored VASP’s compliance with all legal and regulatory obligations. The Responsible Officer must be a full-time employee of the Sponsored VASP and not of the Regulated Sponsor, must be notified to and approved by VARA as part of the application, and must meet all requirements under the Company Rulebook.
Application to VARA
The application must be submitted through the process prescribed by VARA from time to time. In practice, VARA’s regulatory engagement for virtual asset activities typically begins with an Initial Disclosure Questionnaire (IDQ), the likely first formal touchpoint through which VARA evaluates the business model, governance structure, and proposed activities. Applicants should confirm current submission requirements directly with VARA.
At a minimum, the application must demonstrate the Regulated Sponsor’s ability to comply with Part VII, and its ability to ensure ongoing compliance by the Sponsored VASP across all applicable Regulations, Marketing Regulations, Rules and Directives, including as these are amended over time.
Timing and what approval does and does not mean
Standard VASP licensing under VARA typically takes 6 to 12 months or more. While the Sponsored VASP pathway may differ given the Regulated Sponsor’s existing relationship with VARA, a substantive review period should be expected and built into launch planning. Critically, VARA’s approval of the relationship does not equal permission to begin operations. The Sponsored VASP may not commence any VA Activities until all conditions attached to the approval have been satisfied, which may include conditions VARA specifies as part of the approval.
Compliance and Legal Liability
Approval marks the start, not the conclusion, of the Regulated Sponsor’s obligations. From the point the Sponsored VASP commences operations, the Regulated Sponsor assumes full, ongoing legal and regulatory responsibility for the Sponsored VASP’s activities, acting as the single point of accountability to VARA and bearing liability for any failure by the Sponsored VASP to meet its obligations.
Rulebook obligations
The Rulebook draws a clear distinction between compulsory obligations that apply to all Sponsored VASPs regardless of their activities, and activity-specific obligations that vary depending on what the Sponsored VASP is authorised to carry out.
The four compulsory Rulebooks, namely the Company, Compliance and Risk Management, Technology and Information, and Market Conduct Rulebooks, apply across the board. In addition, the Regulated Sponsor must ensure compliance with whichever activity-specific Rulebooks correspond to the Sponsored VASP’s authorised VA Activities.
Resourcing and capacity
The Regulated Sponsor must maintain sufficient resource, knowledge, and expertise to meet its obligations under Part VII at all times, both in respect of each individual Sponsored VASP and across all Sponsored VASP relationships in aggregate.
This is not a static assessment: as Sponsored VASPs’ businesses change or expand, the Regulated Sponsor must ensure its oversight capacity scales accordingly.
Data protection and segregation
In addition to all requirements under Part II of the Technology and Information Rulebook, Personal Data collected by each Sponsored VASP must remain segregated from that of the Regulated Sponsor and from that of each of the Regulated Sponsor’s other Sponsored VASPs.
This applies at the systems level and must be maintained on an ongoing basis.
Responsible Officer: ongoing management
The compliance obligations around the Responsible Officer do not end at appointment. The Regulated Sponsor must validate annually that the Responsible Officer continues to meet all requirements and must maintain records of that validation.
Any change to the Responsible Officer requires prior notification to and approval from VARA, except in cases of reasonably unforeseen circumstances, in which case VARA must be notified immediately along with details of how the Regulated Sponsor will continue to meet its obligations in the interim.
Oversight, supervision and audit
The Regulated Sponsor must review and maintain oversight of each Sponsored VASP’s activities, business, and senior management on an ongoing basis, actively monitoring performance under the written agreement. It must ensure each Sponsored VASP continues to meet the standards required by VARA and must maintain adequate financial resources taking into account the activities of all Sponsored VASPs in aggregate.
The Regulated Sponsor holds standing audit rights over each Sponsored VASP, and VARA retains the right to conduct its own audits or request additional information at any time.
Complaints handling
The Rulebook requires that a separate complaints handling procedure be established for each Sponsored VASP, either by the Regulated Sponsor or by the Sponsored VASP itself, in compliance with Part III of the Market Conduct Rulebook.
Complaints processes cannot be pooled or shared across multiple Sponsored VASPs or between the Regulated Sponsor and any Sponsored VASP. Each Sponsored VASP’s clients must have a distinct resolution pathway.
Annual reporting to VARA
In addition to all reporting requirements in other Rulebooks, Regulated Sponsors must provide VARA with the following on an annual basis in respect of each Sponsored VASP: complaints data, full audited accounts, and all other data as required by VARA from time to time.
Financial Requirements and Risk Management
To support this model, Regulated Sponsors must demonstrate that they maintain sufficient financial and operational resources to cover both their own risk exposure and that of their sponsored entities.
In addition to its existing obligations in respect of its own licensed VA Activities, a Regulated Sponsor must comply with Part VI (Capital and Prudential Requirements) of the Company Rulebook separately for each Sponsored VASP with whom it has a Sponsored VASP relationship. Capital requirements effectively stack across each sponsorship arrangement.
Accounts
The capital and prudential framework is supported by strict account-level segregation requirements. Regulated Sponsors may establish accounts in their own name on behalf of each Sponsored VASP, including Client Money Accounts as required under Part IV of the Compliance and Risk Management Rulebook, business and operating accounts, and an account maintaining Paid-Up Capital in accordance with the Company Rulebook.
A separate account must be established for each Sponsored VASP, with no sharing between the Regulated Sponsor and any Sponsored VASP or between more than one Sponsored VASP.
The name of the Sponsored VASP must be included in the title of each account, and full segregation must be maintained in all books and records.
Marketing, Disclosures, and Brand Clarity
Sponsored VASPs are prohibited from misrepresenting their regulatory status. All public communications, including websites and marketing materials, must clearly disclose that the entity operates as a Sponsored VASP under the license of a specified Regulated Sponsor. In all marketing, Regulated Sponsors must ensure that their Sponsored VASPs comply with the Marketing Regulations, include the name and Licence number of the Regulated Sponsor, and clearly indicate that they are a Sponsored VASP and not a VARA Licensed VASP.
Beyond marketing, each Sponsored VASP must provide the following information in an easily accessible location, in a machine-readable format, kept accurate and up-to-date at all times:
- the name of their Regulated Sponsor and the Licence number issued to the Regulated Sponsor by VARA;
- the authorisation number issued to the Sponsored VASP by VARA;
- all VA Activities they are authorised by VARA to carry out in the Emirate, including any restrictions and the validity period of such authorisation;
- and the name of the Sponsored VASP’s appointed Responsible Officer.
Misrepresentation in this regard may expose the Regulated Sponsor and Sponsored VASP to regulatory action, including the possibility of suspension or revocation of the sponsorship arrangement and other regulatory penalties.
Strategic Industry Implications
The Sponsored VASP framework opens a regulatory channel for incubators, venture funds, and infrastructure providers to foster innovation while maintaining Dubai’s status as a globally trusted jurisdiction.
However, this opportunity also creates heightened legal and reputational risks for the sponsoring parties. Any entity contemplating this role must undertake a comprehensive review of its risk systems, governance, capital adequacy, and compliance workflows.
Concluding Remarks
The Sponsored VASP regime introduces a controlled pathway for innovation within Dubai’s virtual asset ecosystem, balancing accessibility with strict regulatory oversight. By placing full responsibility on the Regulated Sponsor, VARA ensures that market integrity, investor protection, and compliance standards remain uncompromised.
For startups and emerging players, this model offers a practical route to enter a regulated market without the immediate burden of full licensing. For sponsors, it creates an opportunity to build scalable, compliant ecosystems – while taking on significant legal and operational responsibility.
Success under this framework depends on strong governance, robust risk management, and a clear understanding of regulatory expectations. When structured correctly, the Sponsored VASP regime can serve as a powerful mechanism for growth, collaboration, and long-term positioning within the UAE’s digital asset landscape.
Book a strategy callto explore your options under VARA’s new Sponsored VASP regime.
Frequently Asked Questions:
1. What is the Sponsored VASP regime?
The Sponsored VASP regime allows a company to provide virtual asset services in Dubai without holding a full VARA license, by operating under the regulatory umbrella of a licensed Regulated Sponsor who assumes full responsibility.
2. Who can become a Regulated Sponsor?
Only entities already licensed by VARA as a VASP can act as sponsors. They must demonstrate sufficient capital, compliance infrastructure, and operational capacity to oversee Sponsored VASPs.
3. Do Sponsored VASPs need VARA approval?
Yes. Each Sponsored VASP relationship requires prior approval from VARA. The entity cannot start operations until all regulatory conditions are satisfied.
4. What are the key requirements to set up a Sponsored VASP?
Key requirements include common control structure, incorporation in an approved jurisdiction, a binding agreement with the sponsor, appointment of a Responsible Officer, and completion of due diligence and regulatory submissions.
5. Who is legally responsible for compliance?
The Regulated Sponsor is fully responsible for ensuring that the Sponsored VASP complies with all VARA regulations, including risk management, reporting, and operational conduct.
6. What are the main risks of the Sponsored VASP model?
For sponsors: significant legal and reputational liability.
For Sponsored VASPs: limited independence, strict oversight, and dependency on the sponsor’s license and infrastructure.
7. Why is the Sponsored VASP regime attractive for startups?
It reduces entry barriers, lowers upfront costs, and allows faster market access while operating within a fully regulated environment in Dubai.
Speak with the NeosLegal team to assess how the Sponsored VASP regime can support your market entry, structure your sponsorship model, and ensure full compliance with VARA requirements.
About the Author
Irina Heaver is the UAE Crypto Lawyer and Founder of NeosLegal. She has structured over 300 crypto and Web3 projects and advised governments and regulators on crypto asset frameworks.
Legal Disclaimer: This article provides general information about crypto regulation and government liaison strategies. It is not legal advice and should not be relied upon as such. Regulatory requirements vary by jurisdiction and specific business circumstances. Always consult qualified legal counsel in your target jurisdiction before making market entry or compliance decisions.
