VARA compliance audits go far beyond standard penetration testing. This article explains what regulators actually evaluate, why traditional IT audits fall short, and how VASPs should prepare for regulatory scrutiny of their cybersecurity controls.
Many VASPs approach VARA compliance with the assumption that a penetration test and a gap assessment will satisfy regulatory requirements. This is a fundamental misunderstanding of what VARA expects. Having worked with multiple VASPs through the VARA authorization and ongoing supervision process, ITSEC can state clearly: the gap between what most organizations prepare and what the regulator evaluates is significant.
Traditional IT security assessments typically focus on identifying technical vulnerabilities in systems, networks, and applications. They answer one question: can an attacker break in? A penetration test finds exploitable vulnerabilities. A vulnerability scan identifies missing patches. A configuration review checks hardening against benchmarks. These are valuable activities, but they represent only one dimension of what VARA evaluates.
VARA audits ask a fundamentally broader question: can this organization demonstrate sustained, governed control over its technology and cybersecurity environment? This encompasses technical controls, but extends to governance, process discipline, documentation, evidence, human factors, and organizational culture. An organization can pass a penetration test with flying colors and still fail a VARA audit comprehensively if it cannot demonstrate that its security program is governed, documented, and consistently applied.
A VARA-aligned cybersecurity audit evaluates controls across multiple dimensions that traditional assessments typically do not address.
Policy governance is the first area. VARA expects to see that information security policies exist and are comprehensive, that policies are approved by senior management with documented evidence of approval and approval dates, that policies are reviewed and updated at least annually with evidence of the review process, that policies are communicated to all relevant staff with acknowledgment records, that compliance with policies is monitored through internal audits and management reviews, and that exceptions to policy are formally managed through a documented process with risk acceptance by appropriate authority.
A penetration test tells you nothing about policy governance. It does not reveal whether policies exist, whether anyone follows them, or whether the board has ever seen them.
Access control effectiveness goes beyond checking whether multi-factor authentication is enabled. VARA evaluates whether access is granted based on the principle of least privilege with documented role-based access control matrices, whether access reviews are conducted regularly — quarterly for privileged accounts, semi-annually for standard access — with evidence that inappropriate access is revoked, whether joiners, movers, and leavers processes ensure that access is provisioned, modified, and revoked in a timely manner with no orphaned accounts, whether privileged access is managed through a Privileged Access Management solution with just-in-time provisioning, session recording, and automatic credential rotation, and whether administrative access to wallet infrastructure and key management systems has additional controls including dual authorization and geographic separation of signing authority.
Incident response maturity is another critical area. VARA does not just check that an incident response plan exists. They evaluate whether the plan has been tested through tabletop exercises or simulations with documented results. They assess whether the plan includes specific procedures for virtual asset-specific incidents including wallet compromise, private key exposure, smart contract exploitation, and blockchain fork response. They verify that regulatory notification procedures are defined with specific timeframes aligned to VARA requirements. They look for evidence that post-incident reviews have been conducted for any security events with lessons learned feeding back into control improvements. They also assess whether the incident response team has the technical capability to investigate blockchain-related incidents.
The most significant difference between a traditional security assessment and a VARA audit is the emphasis on evidence. VARA auditors expect documented proof, not verbal assertions. This means access review records demonstrating that reviews were conducted, that findings were identified, and that remediation actions were completed. Change management logs showing that every production change followed the defined process with request, risk assessment, testing, approval, and post-implementation review. Incident response exercise reports with detailed findings, participant lists, and improvement actions. Board meeting minutes where cybersecurity was discussed substantively, including the reporting provided and any decisions made. Training records for security awareness programs with completion rates and assessment results. Vendor risk assessment reports for all critical third parties with documented due diligence findings and ongoing monitoring evidence. Penetration testing reports with evidence of remediation for all identified findings including remediation validation.
Organizations that operate their cybersecurity program informally — even if the actual security posture is strong — will struggle to provide this evidence. ITSEC has seen organizations with genuinely good security fail VARA reviews because they could not demonstrate their controls through documentation and evidence.
Understanding how the regulator thinks is essential for audit success. VARA is not primarily interested in whether you use a specific firewall vendor, SIEM platform, or endpoint detection tool. They are interested in whether you can demonstrate control, accountability, and the ability to respond effectively when things go wrong.
This explains why governance, documentation, and process discipline matter as much as — and sometimes more than — technical controls. A VASP with sophisticated technology but poor governance documentation will face more regulatory friction than one with adequate technology supported by robust, evidenced processes. The regulator's logic is straightforward: technology without governance is unpredictable, and unpredictable is unacceptable in financial services.
VARA auditors will also test for consistency. If your risk assessment identifies wallet security as the highest risk but your penetration testing scope excludes wallet infrastructure, that inconsistency will be identified and questioned. If your incident response plan defines a four-hour notification window but your last incident took seventy-two hours to detect, the auditor will probe that gap. The security program must tell a coherent, consistent story from governance through to operational evidence.
This is not to say that penetration testing and vulnerability assessments are unimportant under VARA — they remain essential. However, they are components of the overall assurance program, not the whole program. ITSEC recommends that VASPs maintain a layered assurance approach: annual comprehensive penetration testing covering external infrastructure, internal networks, web applications, APIs, and mobile applications. Continuous vulnerability scanning with defined remediation SLAs by severity — critical within seventy-two hours, high within fourteen days, medium within thirty days. Smart contract audits before deployment and after any material modification. Regular configuration reviews against CIS Benchmarks or equivalent hardening standards. Quarterly access reviews for privileged accounts. Annual governance and process audit against VARA requirements. Tabletop incident response exercises at least semi-annually.
Each of these activities generates evidence that supports the overall compliance narrative. Together, they demonstrate that the organization's security is not accidental but is the product of deliberate, governed, continuously maintained effort.
ITSEC recommends that VASPs begin audit preparation well before the regulatory review — ideally six months in advance for initial authorization and on a continuous basis for ongoing supervision. Preparation should include an internal readiness assessment against the full scope of VARA requirements, gap remediation focused on evidence collection and documentation as much as technical controls, pre-audit simulation where an independent party tests controls as a regulator would, ensuring key personnel can articulate the organization's cybersecurity approach clearly and consistently during interviews, and a documentation review confirming that all required evidence is current, complete, and accessible.
ITSEC provides comprehensive VARA audit readiness services, helping VASPs identify and close gaps before they become regulatory findings. We conduct pre-audit simulations that replicate the regulatory review process, giving organizations the opportunity to identify weaknesses and build confidence before the real assessment. Contact us to schedule a readiness assessment.
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