82 | VARA Unlocked: How to Get Licensed in the UAE's Crypto Capital with Manpreet Kaur

Speaker A: Welcome to the Nephology podcast. I'm your host Joe David and um, I'm the founder and CEO of Nephos Group. On this podcast we talk to founders, innovators, disruptors and entrepreneurs from all across the globe who are building in Web3 technology and finance. And if that's something that you're interested in, please hit that subscribe button to make sure you don't miss out on any of the latest episodes. Now on to the next episode. Hello everyone. Welcome to the latest episode of the Nephology podcast. We are back in Dubai recording again, um, after a brief stint in, in South Africa and delighted to actually welcome back. Manpreet, how are you?

Speaker B: I'm good, I'm good. I'm glad to be here.

Speaker A: Yeah, good. I'm glad to have you here because we're gonna, we're gonna touch on some more. I say specifics but some kind of more kind of actionable kind of certain areas that the, you know, the, that's kind of and stuff here in, in the uae. So um, I think that's going to be amazing for, for people to listen to. So for those that maybe didn't watch the, the first episode and obviously you've changed uh, positions and things like that since, since we spoke last but yeah, maybe you could give a quick background into you and then Neolegal as well.

Speaker B: Sure. So I'm Annpreet Kaur, um, I'm a director of licensing and regulations at Neolegal, um, a law firm that's been established here for over three years now. Um, Neoleg blockchain, crypto digital assets, specialized uh, law firm. So we work with as well high net worth individuals. We work in the gaming space as well. Um, we work on the traditional finance side of regulations as well. So with other regulators like difc, ADGM and obviously var on the digital asset side of things. Um, my kind of background, um, I come from a big four background in the UK having worked with KPMG and transitioned over to the UAE via PwC. So I joined the digital asset world back in May 22nd and was um, on site with Vara basically from pretty early on in their embryonic stage.

Speaker A: Yeah. Nice. And uh, what, I guess what brought you just to get onto that, what brought you to the uae? Was it solely the job or was there other.

Speaker B: Other things? I'd made an investment in Dubai in 2021 so during the UK lockdown. COVID lockdown. Um, I had invested in a property here.

Speaker A: Okay.

Speaker B: And it was a very off the wh. Uh, kind of, uh, purchase. It wasn't a very well thought out one. It was like five bedroom house in the UK or a really nice holiday home in Dubai and Dubai one. And um, what led me to making that move was um, I was informed by Mr. Early that my property's ready. And I was like, okay. So in the beginning of May 20th, January, sorry, 22nd, I decided to start looking for work in the region. And through a colleague I got told about um, this new and exciting project that PwC were working on. And they were looking for somebody with um, a very anything and everything kind of skill set mindset, um, and somebody who wasn't so driven by a job description. And um, I was introduced to PwC, we had a conversation and then the job kind of led the final move over here.

Speaker A: Yeah.

Speaker B: Okay.

Speaker A: So PwC had the VAR opportunity. So obviously they started off very much intertwined as it were.

Speaker B: Yeah.

Speaker A: Um, and then you were kind of, oh great, there's an opportunity here for, for something. And at that point crypto and digital assets was not your forte, shall we say.

Speaker B: I had no idea. I literally asked, I remember asking, um, Dan who, who had interviewed me at the time, what do I need to know before I land. And he gave me some things to read up on. And I was reading on the flight over. Uh, so I've always, it's probably a bit of a running joke, but I've always been, whenever I met anybody I was like, yeah, I'm not the SME on digital assets and I still probably don't profess to be one today. But, um, it was a lot of learning. I didn't know anything. So that was my introduction to digital assets. The first day I went on site with vara, we went in, we were, they were already well into drafting, um, the MVP conditions at that stage. And that was my first intro to digital assets really was the drafting of

Speaker A: the MVP conditions, which I imagine was probably quite a lot of people at VARA in that stage. Right.

Speaker B: I imagine the team that the actual VARA team was four people.

Speaker A: Yeah. Okay. And I imagine all of them weren't, you know, former traders in crypto. Do you know what I mean? I imagine it was very much a professional led approach of how do we do this professionally.

Speaker B: Yeah. And I think that's why it was so successful though, because it was a business lens. Looking at it, I feel like if it had been a group of regulators, the regs m would not have come out for another 2, 3 years. Whereas the mandate and being more business minded, led drove people to getting them out and getting them out within 12 months.

Speaker A: Yeah. And you could probably look at the EU with Mika. That took ages to come out because a lot of lawmakers making it. The UK right now is taking ages to get stuff through. And even the us, although they've, they've pushed things now Trump's there. Uh, it's still taking time. How long is Clarity App been spoken about? And we're still not got it.

Speaker B: Still not got it. And I think this is the reason why VARA was formed in the beginning anyway, is because they were waiting. The UAE was waiting for other jurisdictions. You had Japan, you had China, you had Micah, you had the uk, and we were wait. They were waiting to see what other people, other jurisdictions bring out, but nothing was coming out solid and it was taking time. And then the mandate was, look, we need to get this done. We have interest, we have global, um, VAsPs that are really keen to maybe establish here in the uae. Let's make it happen. And then it was like, if we're going to do this, we have to do this within so much time because then we would just be tarnished with that same representation as everyone else that, you know, oh, they're a typical regulator or they take forever. And, you know, that was not what VARA was aiming for. And I think they more than proved themselves in that 100.

Speaker A: And I feel like they've kind of carried on that mantra as well. You know, they're always very quick to, you know, publish. I say quick, but in a positive way, you know, um, to publish updated guidance or updated rulebooks and things like that. In, in the grand scheme of things, if you think of somewhere like the UK that's still in a consultation phase of what their regs are going to look like. Virus had iteration after iteration.

Speaker B: Yeah.

Speaker A: And I kind of liken it to our business. You know, when we first got into crypto, we saw an opportunity in the market that nobody else was taking. So we were like, we could wait for everyone else, but then we're behind and this and that, so we just got to go for it. And that's kind of where. Yeah, where VARUS at. Right. And so now we're, we're iterating our product and it's probably the same for NIO as well, you know, whereas a lot of law firms will be catching up.

Speaker B: Yeah. So a lot of, like, uh, law firms here. So you've got a lot of the global players and some of them have great teams in house that are focusing on digital assets. But Ultimately there isn't many crypto digital asset focused law firms. That is definitely when Neo Legal is ahead of the game. Um, the managing partner has been part of this industry well over uh, 15 years probably now. And he's very well, strong and established in the space. One of his unique elements is he really understands the technical aspect as well, which we've been finding that not as many lawyers are as familiar with. They can understand the regulatory piece, the compliance, the legal, but the tech element and the technology piece is such a huge part of any uh, digital asset application. Um, so that's definitely where like we've evolved our product. So like where we've got the team that really lead on the compliance, the regulatory, the drafting, the tech. Then you've got myself who understands the industry has good, really good relationships, relationships in the ecosystem. We're evolving the team as we, we kind of see as the regulations evolve, we evolve as well.

Speaker A: Yeah, no, makes sense. And I guess, you know, we've spoken about vara. Uh, we should probably just frame the regulatory landscape here in the UAE because you know, we've said vara, but people may not even know what VARA means or who they are. But obviously there are other kind of regulators. And it's a bit different here. It's a bit like the US where you've got state by state regulation and then you've got federal. Like for anyone listening in the UK we don't really have that.

Speaker B: No.

Speaker A: Um, you know, so it's a different model as well, you know, in a sense Emirate M by emirate as well as federal. So yeah, maybe we could just touch on the, the overarching and then people will understand.

Speaker B: Okay, so from a federal level you have CMA which was formerly known as esca.

Speaker A: Yeah.

Speaker B: So that's the federal level regulatory body and they basically regulate the digital asset space except Dubai.

Speaker A: And cma, just for clarity is Capital Markets authority.

Speaker B: Yeah. So um, the, the mandate from, well the delegation of authority from uh, CMA is Tavara Virtual Asset Regulatory Authority of Dubai.

Speaker A: Yeah.

Speaker B: Savara regulate digital assets in the, the Emirate of Dubai. And then we have the traditional financial uh, regulatory body. So we have ADGM who focus on Abu Dhabi. We have the DIFC which focus on the free zone within Dubai. So VARA reg, everybody within Dubai accept um, the free zone difc.

Speaker A: So the convocation here is you've got the CMA regulate everybody but Dubai. Var regulate everybody, even Dubai, but difc.

Speaker B: Yeah. And, and the other thing is like DIFC and adgm, they're Both regulators. But DIFC is also a free zone.

Speaker A: Yeah.

Speaker B: And then you also have free zones. So you've got Ras Al Khaimah, you've got um, they are a free zone. But there are crypto companies that are not regulated because they're not at that point of regulation, that are sitting in rack under that.

Speaker A: Because they don't fall under the. Don't fall the other regime.

Speaker B: No. Or they don't fit into it right now. And they're very embryonic stage. They're a startup. They're not actually doing anything from a activity point of view. They're maybe focusing on their tech, their product development before they go into the regulatory phase. So it is complicated for anybody who like doesn't know the uae, who doesn't understand why is it split? Only is it split at federal level. Then you've got an emirate that's split up, um, by free zones. And then it's like, which free zone do you go to? Like we. Obviously within, um, Dubai there are certain free zones that are very much at the forefront when it comes to digital assets. Dmcc. DMCC have their crypto tower, which I know you're also based in. Um, we've got dwtc, they've got their um, incubator, we've got the block over there and then we've got um, Maidan and um, ifsa, ah. Who have some VASPS license there as well. So the key kind of four. Four are those four that are really actively um, doing the commercial licensing in for digital asset companies right now.

Speaker A: Yeah, it makes sense. And, and I guess just to touch on, you know, something that's come up to me in the past and just to kind of get some clarity on it. So um, obviously if you're a prop trader in Dubai. Mhm. You need to get an noc. So. No objection. Certificate from Virus. Right. If you're in Ras Al Khaimah, you obviously don't need to get one from Vara because you're outside of Dubai. But is there anything with the CMA now where they've come out with their kind of uh, regulations where anything around that or kind of prop trade is still free to roam as it were? If they were in somewhere like Ras

Speaker B: Alcohol, I think free to roam. No, because even VARA are. I know that there's been a lot of VASPs that are now going through renewals for their NOC. There is more scrutiny. There's a real look at are you using your own funds or are you touching any client Funds, which is a really key differentiator because if they're touching client funds, that moves them into a different bracket, moves them into a licensed activity, broker, dealer. Um, with the cma, it's still very early days. People are still trying to understand and interpret the regulations. I think it's ultimately, it should fall under cma. Um, in all honesty, I think there needs to be that regulation because otherwise, if not, we're going to have prop traders using the, uh, opportunity to get a commercial license, but as a guise rather than actually truly a crypto company and for the safety of the ecosystem for its consumers. The regulation is there to protect everybody. And I think in the future we will see prop trading become a regulated activity, be it in a subset of various requirements or be in a cma, have got a smaller set of requirements. I don't think they'll have to go for the full vast license.

Speaker A: Of course.

Speaker B: Yeah, because that doesn't make sense. But there will be something. But at the moment, under vara, if they're in Dubai, as you said, they've got to get the noc. Um, I think anybody going for that NOC or going for a renewal needs to be prepared, prepared for extra scrutiny. And then I think on the Rack side, I think definitely CMA will crack down on it.

Speaker A: Yeah. And at the moment though, they don't need to get an noc. And right from cma.

Speaker B: Not right now, no.

Speaker A: Yeah, yeah, yeah. And it is, it was interesting actually. I was talking to someone from Rack the other day and they were saying that, which I hadn't really thought about until they said it. But you know, when I talk about proprietary trading, I think about what we've just spoken about, which is trading your own capital with your own decision making, etc. Etc. He was then saying that they're getting people that are going, well, I'm a prop trader and they're calling proprietary trading being using their own proprietary software. And I was like, that's very interesting because you're then, then you are using customer funds. Yeah, but as far as you're concerned, it's your proprietary trading algorithm, as in the one that you've built. And I was like, that's a really.

Speaker B: Funds element is what fundamentally changes.

Speaker A: Exactly. Yeah, yeah, but it's a very like how people use these words slightly differently in their businesses. And that's the tricky part.

Speaker B: Everybody's gonna, you know, regulation is, we're so used to it in a traditional finance point of view. So, you know, if you're doing anything with traditional finance Banking etc, you need to have a license. With digital assets, there's still a fraction of that industry that don't want to be regulated. They have their reasons for it. So ultimately they're going to interpret the regulations how they want to interpret them for their benefit.

Speaker A: Yeah.

Speaker B: Um, and then that is the job of your regulators to crack down on that and, and police it. And I know um, we know that VARA has their enforcement teams. I'm sure CMA will have their own team as well who will now start looking into these kind of things. Um, and I think some, what would be really good is guidance. You know how we have the marketing guidelines is to have a guideline like a guidance manual for prop trading.

Speaker A: Yeah.

Speaker B: Because then it makes it more clearer as to what the regulator considers prop trading, what activities software. The definition is. Um, I remember in the early days when we were licensing VAs as well, one thing that used to come up a lot was around software. So I'm developing a product that I'm taking to market that is for a digital asset company.

Speaker A: Yeah.

Speaker B: But as a product and as a software developer I'm not actually doing the activity but I'm providing you the product. Do I need a license? We are considered a service provider but the minute you start doing the trading of any funds or then you're going to need to become licensed. It's such a fine line in the early days.

Speaker A: But I think that's even like we had a brief conversation a few weeks ago around um, a company that was looking to come here and they provided the software and then you effectively non custodially connect your wallet to their, to their software and then you make a decision. But the challenge of that is like you are kind of, you are kind of driving people towards a decision because your software is part of their decision making process. So then it, it is a fine. I think that one we decided might be okay to be outside for the moment but it would be worth you know, speaking to Vara, maybe trying to get an NSC or something like that. But you know that is the challenge is that this. Because this technology a is very new and innovative and whatnot. There's so much around self custody as well. So how does that. It's such a difficult one.

Speaker B: I've always said where there's doubt err on the side of caution and apply for an NAC because it's better that you're on their radar, uh, on any regulator's radar, uh in a best, in a positive way as seen as being forthcoming and proactive than them come to you and question you. Right. Because then it seems like you've got something to hide. So I definitely, I'm a lot more cautious. I will always advise on that side is get yourself going, but also go and apply for your nac. Put yourselves in the best foot forward rather than having to be on the, on the back foot.

Speaker A: No, that makes sense and it is a sensible approach. The NOC process, do they have that in other juris. I don't know. The. I can't imagine. I've never seen it in the UK giving an noc. No, because it's quite an important thing really when you think. And you know, again, I think we spoke about it but like if you get the regulator to say, we have no objection of you doing what you're doing. Yeah, like, but you don't need to be regulated. Yeah, that's quite a big thing. And I've never really heard about it.

Speaker B: I've seen it in other jurisdictions. Genuinely, I haven't seen it in other jurisdictions. I think the reason was because there was so many people like I referenced earlier about tech, uh, providers. So many people that was companies that were unsure and it allowed VARA to say, okay, we assess you against the regulations and the requirements. We don't deem that you need one right now. However, the onus is on you. If you change your activity, if you change what you are doing as a business, you need to evaluate again and notify us.

Speaker A: And that's ongoing.

Speaker B: That's ongoing. You can't. It's not just an annual thing when you get your renewal.

Speaker A: That's important to know.

Speaker B: You know, the, it is on you as the uh, as the company. I suppose you're not a vast. Unless you're a licensed fast. But you as a company and in a business, your compliance, your legal need to be regularly looking at what you're doing and saying, guys, right now we are touching. We could borderline be considered needing to be regulated. We need to speak to vara and it is a conversation you can have with the regulator. You can approach them and say, look, this is where we're at, but this is where we're going to go. Do we need to get license? And you have that conversation. Um, what I find is there's so many people, I understand there's cost implications, time implications, operational costs, going to market and all of this that have to be factored in. And as a business, and you're a businessman, you know what this is like. You want to do your profit, your bottle line Matters. But it's better to kind of do that analysis than, than get to a point where you've gone gun ho. And then someone slaps you with a fine instead.

Speaker A: Yeah, it's similar when we talk about tax. You know, you're better off declaring it properly in the first place and then being able to enjoy the fruits of your labor than, and you know, pretending you didn't do this or you didn't do that and then having to pay a huge fine, loads of tax in the future and you go, I don't have the money anymore.

Speaker B: Yeah.

Speaker A: You know, so. But that, uh, you know, it's an obvious thing when you say it, but it's, it's an interesting point that people might need to just bear in mind that like they might get an NOC today, which covers them today, but it's an ongoing situation, you know, kind of monitoring if you like, you know, and if they. Let's, let's take a prop trader not taking client funds and then they start taking client funds, it's not just, oh, we can wait till renewal to get licensed. Right. They should then in theory get licensed immediately.

Speaker B: Yeah.

Speaker A: Um, you know, so that's quite an interesting.

Speaker B: Yeah.

Speaker A: Thing for people to think about. So, and obviously now you're on the outside, right? You were on the inside, you're now on the outside. Like how. I guess on both sides. You know, how did you feel being inside initially and like building something and like working with, you know, service providers that were trying to understand it and now being a service provider, you know, I'd be interested to get your take on both sides.

Speaker B: Very exciting. I've always said this is, I was. Someone used the terms of this is a once in a lifetime project. And this was the second one in my lifetime I'd worked on. So it's pretty amazing to be given another opportunity to do something that, that hasn't been done before. Um, being on the inside, it's very intense. There's a lot of demand, um, a lot of learning, trying to balance what the market needs and the ecosystem, but also remembering you're a regulator. There's a really fine line and balance, um, where. And, and being on the inside, then you get the information a lot quicker because there's, you can go to your colleague and ask them a question, you can go knock their chair and be like, hey, by the way. Or you know, it was a lot easier to resolve things and then provide the service providers with the information they needed, whereas they're being on the outside, particularly for myself and I'll talk about my experience. It was a very, um. It took time for me to understand the best way to operate because one, I'd been inside, I'd worked for the T, worked for Vara. So you don't want to be. You know, there's market perception, there's how you're perceived in the market, and you want it to be fair. Like, you don't want to be seen as favoritism and things like that. So I was always trying to be very respectful of the Vara team, not take advantage of. Of. Of. Of the team that. And. And try and approach it in the right way. And I also used to listen and remind myself of the. How we would feel when I was on the inside and try and be mindful of that behavior, you know, um, and not become like, I didn't want people to be with me.

Speaker A: Yeah, I think that's really important.

Speaker B: It's a really fine line. Um, and then over time, like, I've got really good engagement. Um, you know, I always. I follow all the processes that Varadu. When I've had the opportunity to meet with the team, I will check in. Okay. What's working well, what's not working well? Um, how do you prefer this to be done? And the great thing is like, you know, sometimes we'll have certain questions. We've been able to request a meeting with the right people at Varun, and they've come on the call and helped us unpick things with clients to give them the right direction. Because sometimes we don't have all the answers. We'll have the best answers, but we'll also not afraid to go and say to Vara, we think you need to kind of give some guidance on this as well. So. So it's. I'd say it's definitely, um. I can't just pick up the phone.

Speaker A: Yeah, no, no, no.

Speaker B: And I think that's one thing.

Speaker A: But that's a respect thing from you as well. You know, you. Out of respect to them, you don't want to be that person because you know what it would be like on the other side if. If that person was calling you.

Speaker B: Yeah. One thing that definitely changed was my WhatsApp notifications definitely reduced after I left, which was a blessing, to be honest. Um, and in a good way. But yeah, there's. There's communication channels. I use the ones I have. I try to be very respectful of the other side as well. Like, I'm working with SMEs that really understand the space. Right. The team that we've got, the knowledge we have in house is phenomenal. So sometimes, you know, it's more just, um, talking to people in the peers in the ecosystem. Sometimes you and I will, um, bounce off each other, um, other colleagues that I have in the industry. You know, we'll pick up the phone and we'll. We'll hash it out and work it out. We've had, you know, more recently. We worked with Simmons on, um, Animoca's license. And it was great working with Adam and his team. It was always a phone call, let's work this through. And then we work Animoca on it. That was a great experience working with Simmons. Um, and again, they've been part of that VARA journey from day one.

Speaker A: Uh, and Adam's a great guy.

Speaker B: Yeah, fantastic. The team, Mariella and everyone were really good. So it worked really well working with them. And they're like, how can two law firms work together? Well, actually we can because we really work. We worked on one area, they worked on another, and we brought it together. So it worked really well.

Speaker A: Yeah, I know. That's good. Um, so I guess moving then on to the kind of present day, if you like, in terms of where we're at. So, you know, vara, obviously, we talked about CMA briefly coming out with their own regulations, but, um, But VARA have been, I say changing. It's probably not the right word, but they've been updating. Yeah, the right word, their rule books and stuff. So maybe we could just walk through the last. I mean, as far. I say as far back as we can, but maybe. Yeah, the last 12 months of what's developed, what's changed and what people need to be aware of Now.

Speaker B: So. Well, 12 months ago, they bought our Rulebook 2, version 2 of all of the rule books. And in that we saw a substantial change to the issuance rulebook. So you've got Category one, Category two init with issuance, we didn't see much movement and anyone licensed under issuance under version one, but with version two, we've seen a number now of VASPs obtain the category one license, PRIPCO control, ALT, um, and they've kind of led the way, um, and Token Vest as well have significantly led the way and are very involved in that space. So the evolution of Rulebook 2 really brought out more of the RWA, AVI, Avar, um, VASPs, the VASP that want to deal with AVA and RWA. And we. We've seen a huge, um, uptake in inquiries around RWA as well. Real world assets. What can we do with them? And what we've realized is that there's a number of us that really want to launch a token but don't necessarily understand what's needed for that. So then we, we have started doing a lot more kind of deep diving with them. Some more structuring first before we, if it's a broker dealer, we can pretty much tell this is what it is. Crack on, let's get on with the work. But with tokenization, we do a bit more of a deep dive, maybe structuring first because some of the vast might then benefit more from actually using a controller. A token vest.

Speaker A: Yeah. Okay.

Speaker B: Right. To issue the token.

Speaker A: Yeah.

Speaker B: And then it might mean they need a different license. And then we work out what do they actually need.

Speaker A: Yeah.

Speaker B: Um, there are still some vests that are using offshore as an option as well. So that's where the team will, will, will bring in the team that are really strong on that Sunday, then unpick um, that with the clients.

Speaker A: Just, just to finish on that critic. What do you think was the main driver? Because you said that not many people were licensing under uh, the first version, but under version two more. Was it a VARA chain? As in like in their mind, they, they have more clarity on what they could license or was it the entities themselves? Uh, like what do you think was.

Speaker B: I think it was more of a var. I think as in they were evolving the structure and the framework and the guidance.

Speaker A: Yeah.

Speaker B: I think what they had initially was good, but it needed to be more solid for the different types of assets that people were wanting to tokenize. And obviously we're not the uae. Dubai, sorry, is not tokenizing everything and anything. Right. There's got to be some cultural awareness.

Speaker A: Yeah.

Speaker B: We are in the uae. Um, you know, so there's been some interesting projects I've heard that have come and gone as quick as they've come. Because. Because it's just not suitable for the region. I um, think it's just the virus side needed. The structure, the process. The process is slightly different. There's an element of more due diligence. I would say right now it takes longer on the issuance side to get an issuance license than it does the other activities as well.

Speaker A: Okay.

Speaker B: Um, your white paper is a big factor.

Speaker A: Mhm.

Speaker B: So there's a lot more elements to fight. So I think that needed to be in place from a far aside before then people could go through that process end to end.

Speaker A: Yeah, makes sense. Makes sense.

Speaker B: Sense.

Speaker A: So um, we had that 12 months ago and then recently we've had uh, derivatives.

Speaker B: Yeah. So under the exchange rulebook we've got now version 2 of the exchange rulebook with derivatives.

Speaker A: Okay.

Speaker B: So VARA were running a pilot program on derivatives and have now transitioned from pilot to full market. So now VASPs can apply directly for derivatives. You don't have to wait to get a license and then apply for derivatives because whilst the pilot was running it was get your license and then add. You can then request to be part of the pilot.

Speaker A: Okay.

Speaker B: But whereas the NAVAS can go straight ahead and go for direct and that's

Speaker A: just an add on. Effectively if they're doing the exchange license they can then add on and cost wise is that an additional cost onto the license just included in.

Speaker B: Same, same cost.

Speaker A: Okay.

Speaker B: It's more of a, there's uh, capital requirement considerations. There's more cost to the vasp.

Speaker A: Yeah, yeah, yeah, yeah, yeah. But licensing fees.

Speaker B: But licensing fees are the same.

Speaker A: Yeah. But it is a. You don't just get it, you do have to make sure you still have

Speaker B: to go through the full due diligence. You have to declare it in your IDQ queue in your business plan and you need to be, it needs to be present in all of your documentation, your policies and procedures that are relevant.

Speaker A: And that I think is important because when they include something in something else it's sometimes saying, oh well if it's included then I can just go for the exchange license and I get.

Speaker B: We've got like a number of usps that wanted to apply for derivatives and because of the different stages they're at, they've decided to get their license and then.

Speaker A: Yeah, right.

Speaker B: To borrow and request to now provide the documentation for derivatives. We've got some that are doing it from day one. Yeah. So it's still possible. It's still possible, yeah, yeah.

Speaker A: To do it the other way which is to get it licensed first and then add derivatives on after. So like you say for some people, if they want to get to market quicker and yeah a kind of lower cost overall, um, that route is still, is still. I guess it depends on the business. Right.

Speaker B: And their appetite and like one of our multi activity they're going for. So for them they're like okay, let's carry on with what the track we're on and then let's go for it afterwards. Afterwards.

Speaker A: Yeah, it makes sense. And so the other thing that I've noticed and um, just kind of touched on where we kind of work together is that ah, the Whole process seems to be a lot more thorough and I mean that in a good way. Not that it wasn't thorough before. Like they were still very thorough before obviously, but it just feels like the whole process now and even, you know, we work on some areas together. Like, you know, we will take on some of the financial prep work because that's quite heavy now. Where have you seen that process? And we can touch on the financials as well. But, but you know they've, they seem to have been much more robust across.

Speaker B: Yeah. So we, um, about, I would say nearly 12 months ago, towards the end of September time, started to see a lot more questions coming back on phase one IDQ. So the RFIs were a lot more detailed. Yeah, a lot more questions. Um, earlier this year, VARA launched VARA Connect, which has moved phase one from a offline process to a online portal process. So you, um, submit everything through their VARA Connect process. And that has made it a lot easier because the way in which you submit the information, the way you see the information, I'm sure it's made the case officers jobs a lot easier as well. And we've seen more recently then therefore more, um, I would say really focused questions, but the volume has got less and I almost feel like the new IDQ form does drive you to give better answers.

Speaker A: Okay.

Speaker B: Um, and we give our, we give our VASPs that structure from day one.

Speaker A: Yeah.

Speaker B: Um, and it really helps them hone in on the business plan more. So I think the change from being back and forth over email to now being on a system definitely helps.

Speaker A: Yeah, that makes sense.

Speaker B: It's got a great function in it. You can send questions to your case officer through the system and it's, it's brilliant. It comes back within. There's SLA and things like that. So it's a lot more efficient.

Speaker A: I like you say it's probably significantly more efficient for them as well.

Speaker B: 100%. So definitely seen that tighten up a lot. And, and that's helped them because it makes the rest of the process feel a lot easier. Not easier as in it's easier to comply with, but it just feels a bit more seamless.

Speaker A: Yeah, it's a bit more flow. Like the flow.

Speaker B: The flow is much better.

Speaker A: Yeah. Um, and all those sorts of things. And then do you agree, do you think that the financial side as well has, has kind of become a bit more.

Speaker B: It's definitely, it's more robust.

Speaker A: We seem to get a lot more questions than we used to. To.

Speaker B: Definitely. Um, and, and that's really funny actually, because my last two, two RFIs both had questions about the financials. They definitely have become more robust on the financials. I, um, think the, one of the biggest misconceptions is I can just get a VARA license. And we've often talked about one of the things that founders underestimate and that is the cost of a viral license. Not the license itself, but the overall full process. This. And I think what VARA really want to understand is, is this VASP stable enough to be operational once licensed? And are the figures they're giving us truly accurate? Are they inflated? If they're inflated by what X? And why are they inflated? Or if they're under, why are they under what. What's going on here? Because some of us try and under like drop their figures and we're like, doesn't make sense. And that's where people like yourself and the team come in. Because, like, um, one of the projects we're working on, there's things that the team have picked up on that I wouldn't. I'm not a financial expert. Right. So that's where that working relationship really helps. Because we've got SMEs on the financials, we can handle the rest of it. And I think sometimes having somebody else look at the financials separate from the full application really helps. And then when they look at the rbp, they're able to go, okay, right, here's your gaps.

Speaker A: Yeah.

Speaker B: So then that reduces the number of back and forth with vara, because we've identified things already.

Speaker A: Yeah, nice. Yeah. And I think that's the key thing, right. As well, because we are now used to, A, we're used to working with you guys is you're used to working with us. But B, now we've worked with a lot of VAsPs on this process. So we're also kind of used to what we're going to get asked. And you know, I think that I remember we, we got one quite early on and you know, the figures were just insane. Like they were just completely unrealistic numbers. And he was. And the guy, I remember the guy saying to me, it doesn't matter, they're not going to look at it anyway. And I was like, you couldn't be far further from the. Further from the truth. And, and I think that's. They've like licensed, you know. How many have they done now? 40, 45.

Speaker B: 45. Nearly 50.

Speaker A: Yeah. So like, they've also seen. And they've also seen some that they haven't Licensed, if you know what I mean. So, like, they've also got a track record of understanding what those numbers need to look like. And, you know, if you've, if you're expecting people to be here and then you come up all the way over here, that they're going to be like, well, hang on a second.

Speaker B: Yeah. Um, and one thing as well, that the financials really helps, um, I've noticed come up a bit is head coach count.

Speaker A: Yes.

Speaker B: There's a real underestimation, uh, sometimes of, okay, you've got one activity, two to three personnel is fine. If you're going for two, three, four activities, three personnel is not enough.

Speaker A: Yeah, yeah, yeah, yeah, yeah.

Speaker B: And obviously that needs to be in the financial projections in your operational cost, your OpEx, 100%. And we've often had those questions then of, uh, why is your financial model not reflecting the headcount or what? There's an anomaly.

Speaker A: Yeah. The complexity of the business.

Speaker B: Yeah.

Speaker A: And also people sometimes, especially if they're outside coming in, they don't understand the cost of these things here. Right. They don't understand how much it costs to hire an AML officer or, you

Speaker B: know, that's definitely changed a lot from 2022, May to now, current day, we're nearly four years on. Exactly. Um, the cost of a compliance officer, a chief compliance officer, mlro, has significantly increased. If you're going for somebody that is already experienced with vara, so they've been through not only the application process, but also the interview with vara, and they've had the ongoing engagement as a super. They've been under supervision by vara. That individual is going to command significantly more than somebody who is a compliance officer in a traditional finance company who wants to get into the digital asset space.

Speaker A: Yeah.

Speaker B: Um, and I've been having this conversation actually with, with colleagues in the recruitment industry recently about the increase that has happen. Um, we've got VASPs that are interviewing right now for the said individuals and have had those conversations with me saying, manpri, is this realistic? And I'm like, well, it depends on what you want as a vasp, how big you are, what's the complexity of what you're doing. Um, and it is hard to get compliance, uh, officers that have been through the full process with VARA, because obviously there are only 40 licenses, right. 40 to 50 licensed right now. And, um, there are a lot of people that want to move in the space, you know, um, but what we find challenging is with clients that come from other jurisdictions trying to Bring individuals over that don't have the right skill set.

Speaker A: Yeah, yeah, no, I, and I think that's, you know, I think compliance is a huge area. But there are other areas of the business that are in a similar kind of position. Right.

Speaker B: Even like your gm, your, your um, CEO, whatever. That top level individual who's responsible and accountable for the UAE entity is them truly understanding what's needed of them. They also need to understand the rulebooks, but they also need to understand the region and vara, uh, and the ecosystem. And sometimes I think people underestimate what, how things operate here.

Speaker A: Yeah. And I think that uh, you know, the difference I've seen is those people that have come here, they've understood the market a bit. They've, you know, they're going through the process. Like, you know, there's some clients that go through the process from outside. Right. So they might be based in Europe.

Speaker B: Yeah.

Speaker A: They haven't moved here, they haven't got a team on the ground here and they're going through the licensing process. Person, when they're licensed, they'll come here and they'll do whatever they need to do. But they've got no idea of the cultural side. They've got no idea, like you say, of what's right and wrong from a cost perspective. And because they've not, they've not put themselves in and lived and breathed it right. Whereas those people that go, do you know what? I'm going to put my life on this. So I'm going to move here, I'm going to understand, I'm going to do this, I find they're much stronger.

Speaker B: Yeah. And when they come to you already and they're like, okay, I'm in the uk, but my, the CEO of the entity is already there. That person already knows that they've done their groundwork.

Speaker A: Exactly.

Speaker B: So you're dealing with less combative kind of, um, cultural change. But one thing about neolegalism, we always, this is one thing I really, um, credit us on is we really do up, do a lot of knowledge transfer with the VASPs, so the culture, how FARA works, how it is to actually live here and be here and run a business here. There's a lot of knowledge sharing that we do and hand holding so that the VASP is not so much struck like, oh my God, what have we done done? We kind of keep that journey going all the way along because I think if you just let them go with that mentality of, oh, I'll deal with it when we get the License.

Speaker A: Yeah.

Speaker B: It's a very, very, very shock, uh, to the system.

Speaker A: Yeah, agreed. And just touching on, uh, we, you know, you mentioned a second ago about people underestimating the cost. You know, obviously ballpark high level, just to give people an idea but like what sort of number do people and timeline do people need to think about? And when I say number, I mean also some of these positions that they need to be hiring for. You know, does somebody need half a million dollars? A million dollars, Two million dollars.

Speaker B: We always say like a million US Dollars is a really comfortable number.

Speaker A: And would that cover.

Speaker B: And that's like if you're applying for one activity, maybe two, you can hire your GM CEO, your chief compliance officer. Your chief compliance officer can be a combined role with your mlro. But if you choose to hire separate, fine, that will still fall in and somebody accountable and understanding of the financials. We always think there should be someone strong on the ground. The numbers, they're your kind of three key. You know, I know VARA says two, but I still say three because I think sometimes your CEO doesn't want to have the responsibility just for the financial. So then they prefer to have somebody in the team who really spends it. That's their job to really focus on it. Um, that also adds in insurance.

Speaker A: Yeah.

Speaker B: Uh, audit your bank account, be it operational or operational client money. Um, and then also things like your auditors. So you know, you've got your technical audit, your, your financial audit, your compliance audit, they need to have your internal audit. Um, and then obviously your other cost like marketing and all those things.

Speaker A: I think about a million dollars.

Speaker B: Yeah, I think it's a sensible figure. I think if you're trying to do it in less, you're definitely going to be penny pinching.

Speaker A: Yeah, yeah, yeah, yeah, yeah. And timeline wise, where are we sitting on that roughly?

Speaker B: You know, if you're a very organized vasp, as in you've got your T's crossed, your eyes dotted, you could really get your nine months. I think. Okay, you, but you've got to be on it.

Speaker A: Yeah.

Speaker B: And I always say this, this isn't VARA or ah, you as a vasp, you've got to be on it. Um, you've got to be responsive. We can work as quick as you can. Um, and then yes, obviously there's time. You know, you worked with our AS SLA. But um, nine months is a really sensible nine. Nine to 12 months is still a good estimate. Yeah.

Speaker A: And, and I guess then touching on that period, like what, what should. If I'm a VASP and I'm looking to come to them to the um, to the area like what sort of process, you know, as high level as you can. What sort of process should I be looking at across that 12 month period?

Speaker B: So you're introduced, I'll use us as how we run the process. Uh, to be honest it's easier. Um, VASP is introduced to us, we do our initial introduction call with them. We understand we can onboard within days. Really frankly it's then a case of you're looking at first. Your first uh, kind of act is selecting your free zone. Where are you going to set up. We do that as part of our process. Then we'll start working on the IDQ form and the regulatory business plan. We always advise VASPs to start on the regulatory business plan and then we work. We complete the IDQ following the RBP review. Sometimes that can go through one or two iterations, sometimes we go through three and four. It really does depend on how ambitious the VASP is. Once you've submitted that we then start work on the regulatory documentation whilst we wait for VARA to review that and come back to us. So the first one you're looking at two to four weeks. Then VARA review you, you've got your review back within two weeks. Now we've been seeing like pretty much within two weeks we get a response back on the first submission of the IDQ and regulatory business plan and then you we're working on the documentation. Documentation can take anything from um, six

Speaker A: to 12 weeks and by documentation and

Speaker B: we mean your policies and procedures. Uh so you've got your company documentation, you've got your fit and proper forms, you've got your AML policy, you've got your um, infosec. It's basically all of the documents that are required policies and procedures and processes to comply um, with the VARA regulations and requirements. Um, some of those you won't be able to submit on first go. You may not have already identified your uh, key staff that you're hiring. You will be in process with insurance because some companies like insurance providers, auditors, they don't want to sometimes engage with you until you've made your submission. Definitely won't until you've got your approval to incorporate which you'll get off IDQ you but there's some that they prefer to kind of start the conversation but then won't do anything significant until you've submitted your application because then they can say you're so many months away from, from getting your license so once we've developed the full documentation stack in parallel, we're responding to the RFI if we have any from VARA. Once we get RFIs, we respond with the client and then we will be given the approval to incorporate certificate that allows you to go back to your free zone, say right, I can now start incorporating my company. Um, um and working towards being operated operational. You can't be operational, but that allows you to get your office space and

Speaker A: hire staff and roughly what, sorry, from initial call with you to um, ati. Yeah.

Speaker B: Approval to incorporate. If everything kind of works on that. Four, four weeks you're looking at two months.

Speaker A: Okay.

Speaker B: Two to, two to three maximum.

Speaker A: Okay. So then you incorporate, go through that process alongside then developing your documentation. Okay.

Speaker B: Yeah. Like you should really not waste that time because thing is once VARA give you that approval to incorporate you have a 12 weeks week um mandate. You've got a 12 week deadline from VARA. So we start in advance. Um, use as much of that time as possible so that when we come to the 12 weeks we're actually refining the policies and procedures at that point with the vasp. We work with the vasp so we draft but we have the VASP really look at them and we go through it and we even get the VASP before submission to vara. We get the VASP to present those documents. But back to us.

Speaker A: Okay.

Speaker B: So they explain what the VASP has said. This is what we're doing, this is how we're going to do it. So it helps prepare them for any questions they might get from the regulator once super. Under supervision. And then basically that process then continues until the point at which VARA say okay, you are in um, the in principal approval stage. So your ipa and that means you're a number of requirements away and you've got 30, 60, 90 days to comply with those two.

Speaker A: And those requirements being.

Speaker B: Could be you're waiting for your CMA.

Speaker A: Yeah. Okay.

Speaker B: It could be your um, your MD can't start. Ah. Because they've got a three month notice period. So you'll have a 90 day requirement on that. Things like that.

Speaker A: Yeah. And, and at that point you can't operate.

Speaker B: No.

Speaker A: As a business. But so you're, that is, you're almost getting operational operation. Yeah. But it is kind of a waiting game a little bit then as to, to uh, what that and does anyone ever go from like to get that where let's say they say they don't get in principle approval. What I mean is is that in principle approval it's like one tiny little thing that takes a week to do and then they're approved within a week. Or like what?

Speaker B: I. I wouldn't like to say yes, because I think that would be a very unique situation.

Speaker A: Yeah, but it is possible.

Speaker B: It's possible. Anything's possible. Right? Anything is possible. But I think more often than not there's probably like 2, 3, 4, 5, you know, requirements that are the dependency is not on. The VASP might be a third party and therefore that's why there's a delay. Yeah, um, not a delay, but there's processes they have to go through and then that's why you've got these conditions before you get operational.

Speaker A: But then at that point, let's say for ease of conversation, let's say it's the MD can't start for three months and then you negotiate a deal and you get them to start within 30 days rather than 90 days. If you. And that's the only condition just for argument. And you then go to Vara and say, here's the guy, he started, started that. They don't have to wait out the extra days. They can go, okay, here's the guy

Speaker B: that's agreed then obviously, yeah, they go through their own internal.

Speaker A: Of course, yeah.

Speaker B: Process. Um, and then they would issue them.

Speaker A: But it's not like they go, no,

Speaker B: they won't wait till the 90 days. Yeah, someone can start and you can comply earlier. Fantastic.

Speaker A: Yeah. Then great. Okay. Yeah, so we're so to break it down then. So we've got the initial uh, kind of um, uh, regulatory business plan, etc. Etc. Then we get the um, uh, approval to incorporate. Um, then when that's happened alongside that, now you're incorporating but at the same time you're reviewing documents and, and you know, wider, I guess the wider application process. Um, then you're getting in principal approval and then you get your full license, um, at the end and, and if, in theory if, if you don't comply in that period, you've got. So let's say it's a hire somebody and then they decide after 60 days they're not going to come and then you've got to start that process, you

Speaker B: can request an extension. There is for that now, but you can request an extension.

Speaker A: So if it's something like that where it's kind of out of your control a little bit, um, but if you, if you didn't comply within that period, it's completely cancelled and you'd have to start again if you wanted to come back.

Speaker B: So that's you mean if the vast. Cancels the full process.

Speaker A: I mean if like in from principal approval to actually being issued the license. If there's reasons that it doesn't go through and you don't get an approval to accept extend in theory if you don't comply within that period after.

Speaker B: I think that's a very unique situation and that would be a case but unlikely. But I think it'd be a case by case analysis because you've done so much work.

Speaker A: Yeah.

Speaker B: Right. And um, VARA very invested at.

Speaker A: Yeah.

Speaker B: Getting you through to that final stage. So I think it's a case by case basis. I think it'd be very hard to say yes or no. Um we've not seen that personally on our side. Um the only kind of things we were dealing with at the end were little things like you know, insurance was going through or um. Bank account. Bank accounts always been one that I see so much. Yeah, yeah it's a lot better now I must admit. The banking process is much more efficient.

Speaker A: Yeah definitely. And I think I was just trying to get to the you know, unicorns. Yeah.

Speaker B: Like.

Speaker A: But also is it possible that you get in principal approval but then for whatever reason you don't get you don't comply and therefore again like that could be a crazy.

Speaker B: But the times where we've seen something not go forward is in favor of phase one, the IDQ process. Um because there'll be red flags in that application. Something will come up.

Speaker A: Yeah. Okay. So we've seen unlikely. It's not going to come up until.

Speaker B: Exactly. Any. Anything that really is questioned or is a red flag is. It's quite easy to pick it out I think in phase one.

Speaker A: Yeah.

Speaker B: So then that's the time where we've seen maybe VASPs drop off.

Speaker A: Yeah. Okay.

Speaker B: That phase one rather than that far down there.

Speaker A: Um, and I could sit here and talk to you about this all day long but uh, we do need to wrap up in a sec. One thing I just want to touch on before we go is you know I like to uh, you know, make sure we get some actionable points. You know maybe you could just in a couple of minutes just give some. I say mistakes but you know some really kind of basic kind of stuff that people sometimes don't think about that you would say is a real kind of thing to think about to take away before they look at applying.

Speaker B: I think they need to understand the effort that's required from them. That is one of the biggest mistakes and misconceptions we've got got examples of where we've got like 15 people from the client side working on the application because they're a bigger organization and they're all invested and got their, they've got really clear roles and responsibilities to having like two people and then it, it becomes a second job for those two people. Um, and it's not because there's lots for them to do, but there has to be input from the client. Ultimately once they go into their license and they're given their license, yes, we do supervision support and we're working with VAs on supervision support now. But they have to front that relationship. So there needs to be that understanding of what is it they're submitting to the regulator. So one of the biggest mistakes is how much time and we get frustration from the clients and things like that. So we just kind of explain it that that is one of the biggest misconceptions. Um, mistakes is where UBO is not upfront and honest. That's been, you know, a couple of instances where we've seen that where you question them as much as you can initially, but then um, VARA do a background check and find something.

Speaker A: Yeah.

Speaker B: And it's, it's very difficult then to keep. If you know there's something, be it you, you know, and the thing is viral will look globally, not just in the uae. So if you're in the uk, if you're in Europe, if you've got, got a sanction of any kind, if you've got any kind of um, connections, uh, adverse media, perhaps it is better that you say, okay, I, you know, 12 months ago we had this adverse media.

Speaker A: Yeah.

Speaker B: There was no action or regulatory action because of it. But this is how we dealt with it as a company. What VARA want to see is if something is raised that you as an individual or as a company, company address it and put in a process or you put the right corrective actions in place.

Speaker A: Yeah.

Speaker B: If you don't do that, you're showing a lack of regulatory maturity immaturity basically. And you are uh, showing that you're not taking the regulator seriously. And um, I think that can damage the relationship very early on.

Speaker A: Um, it's also a trust thing, right?

Speaker B: Yeah.

Speaker A: Do they trust you?

Speaker B: Do they trust you?

Speaker A: It's kind of that, um, we have it in the tax kind of side where it's like an unprompted or a prompted disclosure. So, you know, have you gone to the tax authorities and said, look, I made a mistake, I owe you some tax. I want to now Declare it. How do I do that? There may still be a penalty, but it'll be significantly lower than if they come along and they go, we found this and you didn't declare it and you go, I, I should ah, have told you about that. You know, the, the penalties on that side are significantly higher. Um, and it's probably the penalty. There may not be a financial penalty on this side, but it will be a reputation

Speaker B: and you might find that road then becomes blocked.

Speaker A: Yeah.

Speaker B: More often than not because it's like, well, you're not really serious. So that's something that has to, I think is, is another mistake. I think the third mistake like we mentioned cost, you know, not um, declaring things properly in the financial forecasting. It leads to more questions and RFIs and things like that. So it's better just to really be sensible about your forecasting from day one and understand what you're doing. Um, there's many mistakes, like little things, misconceptions that come up. But some of the big ones I've mentioned, mentioned I, um, think as well is the whole living here situation. You need to be here on the ground that you can't just get the visa and think that's it. You need to remember you will be inspected. There could be spot checks done, there could be last minute meetings called in person. You need to be here. And I think when you're running a crypto digital assets business, you need to be very close to, to it. Right. So if you're taking on that accountable role, you need to do what it says on the till.

Speaker A: Yeah.

Speaker B: Tin. Be accountable, basically. Um, I think there's a bit of a misconception around that people make that mistake, oh, I can be here, I can be there. And then they start realizing you can't, it doesn't work. No. You know, unless you've got a bigger team here on the ground and you've got a second in command. Fine. But if you're trying to run a lean operation, be compliant, but lean it,

Speaker A: it's not gonna, it's gonna fall apart.

Speaker B: Yeah. Very quickly.

Speaker A: Yeah. Yeah. Thank you so much.

Speaker B: Thank you for having me again.

Speaker A: M. We'll obviously put um, everything in the um, in, in the show notes. But where can people find you and Neo?

Speaker B: Well, we're in Dubai in Media City. That's where our office is. Um, we're online, we're on Instagram, Um, you'll see a lot of really good content from us. We talk a lot about very simple, very pragmatic guidance for VASPs. Um, I kind of, um, am very keen to make sure that, um, anything I put out there is accessible to everybody. Um, and obviously the engagement with yourselves and stuff, so. Yeah.

Speaker A: Yeah. And you like. I like your stuff. Because you're like me. You try and put educational, useful information, not just sales.

Speaker B: There's a lot out there.

Speaker A: Crap.

Speaker B: There's a lot out there and there's a lot of sales elements. But it's great to put stuff out there. But is it useful?

Speaker A: Yeah.

Speaker B: And coming from my educational background, I'm very conscious of the industry we work in. We work with a number of diverse people, and it's really important that they actually understand the regulations. You can hire a lawyer, you can hire a compliance person, great. But if you're that accountable individual, it's good that you have some kind of understanding as to what you're signing up for as well.

Speaker A: 100%.

Speaker B: So, yeah. Thank you so much. Amazing. Thank you.

Speaker A: Thank you.