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1 month ago
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- Vara’s AI system will evolve
- Connects to third-party processes
- Dubai wants to be crypto destination
Dubai’s cryptocurrency regulator is rolling out a system that uses artificial intelligence to monitor live transactions, detect illicit activity, flag suspicious accounts linked to scams or hacks and allow it to act swiftly against bad actors.
The new system is intended to plug into the operations of digital-asset companies such as exchanges – a development that officials say could set a new standard for oversight of the sector.
“We can connect directly into and pull data from their systems,” Dan Johnson, general manager of the Virtual Assets Regulatory Authority (Vara) exclusively told AGBI.
The tool would give regulators instant access to information to spot risks faster than relying on periodic report submissions.
“We’re looking to implement AI-enabled licensing, supervision [and] enforcement tools that can make things more efficient for us as a regulator,” said Johnson.
Set up in 2022, Vara is the world’s first independent regulator for virtual assets and operates across Dubai’s free zones and mainland, excluding the Dubai International Financial Centre.
It oversees a mix of startups and global companies, including crypto exchanges Binance – the world’s largest crypto exchange by trading volume – Bybit and OKX, which are both among the biggest players globally.
Vara uses third-party blockchain analytics providers such as Chainalysis, Elliptic and TRM Labs, which specialise in tracking illicit crypto activity, compliance monitoring, and investigations.
The new system, Vara Connect, adds to the regulator’s own AI layer to “see through that data” and focus on what matters most for consumer protection and market integrity.
Companies will connect to the system using an Application Programming Interface (API) after completion of the first phase. An API allows different apps or companies’ platforms to talk to each other automatically.
This will entail the onboarding of licensed virtual asset service providers (Vasps) and consolidation of financial, customer and on-chain data Vara already receives.
A Vasp is a company that facilitates the exchange, management or transfer of digital assets, particularly cryptocurrencies.
Over time, the AI underpinning the system is intended to evolve to give regulators a live view that sifts through thousands of data points and flags potential risks.
“All of these different data points are typically looked at by a supervisor but they’re only able to focus on a certain amount of information at the time,” Johnson said.
He said the concept it is building will ingest all the data, analysing and highlighting areas of concern.
Johnson said red flags include flows from high-risk jurisdictions or wallets previously linked to scams or hacks, or instances that indicate a company’s compliance function and anti-money-laundering controls could be failing.
“This demonstrates that someone is on the platform of one of our regulated entities and may be compromised or be a bad actor themselves,” he said. When any of these trends are identified, they can intervene.
Ruben Bombardi, general counsel and head of regulatory enablement at Vara, described the new level of oversight as “risk management 2.0”.
Dubai has sought to position itself as a global centre for digital assets but has faced perceptions of being too “crypto friendly”, with rules seen as making it easy to obtain a licence.
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Bombardi said Vara’s regime is strict and closely aligned with international standards including those set by the global watchdog for financial crimes, the Financial Action Task Force.
He rejected suggestions that the jurisdiction offers light-touch regulation: “The access to data that we have is possibly second to none.
“There is some misconception as to how stringent the requirements are. It’s actually a very institutional-grade type of regulatory bar, and it’s aligned with traditional finance. There is no delta between us and what banks and financial services have to do.”
Vara’s CEO Matthew White earlier told AGBI that fewer than 5 percent of applicants have been granted a full Vasp licence.
“We follow a very principle-based approach as opposed to regulators that are much more dramatic and rigid,” Bombardi said.
“We can create new paradigms when it comes to risk management that will enable good players. It will give more space to innovation without compromising integrity in the market.”
Cryptocurrency will be on the agenda at Gitex 2025, which will take place in Dubai on October 13-17. AGBI is an official media partner for this year’s Gitex – read our exclusive tech coverage in the run-up to the event.
