A practical breakdown of the cybersecurity, governance, and operational requirements that Virtual Asset Service Providers must have in place before submitting a VARA license application in Dubai.
Dubai's Virtual Assets Regulatory Authority has established one of the most comprehensive licensing frameworks for virtual asset service providers globally. ITSEC has guided multiple VASPs through the VARA authorization process from initial gap analysis through to successful licensing. An incomplete application does not just delay authorization — it signals a lack of operational readiness that regulators remember.
This is the practical checklist ITSEC uses with clients preparing VARA applications. Every item below will be scrutinized during the regulatory review.
VARA expects a clearly defined governance framework with board-level oversight of technology and cybersecurity risk. This is not a check-the-box exercise. The regulator evaluates whether governance is functional or decorative.
A designated Chief Information Security Officer or equivalent must be appointed with a direct reporting line to senior management and periodic access to the board. The CISO cannot report to the CTO or CIO — VARA expects independence of the security function from the technology function to prevent conflicts of interest in risk assessment. Decision-making authority for security incidents, policy exceptions, and risk acceptance must be formally documented with clear escalation matrices. Board meeting minutes must demonstrate that cybersecurity risk is discussed substantively, not as a standing item that gets a one-line note.
ITSEC typically sees applicants fail here because they appoint a CISO on paper but cannot demonstrate that the individual has the authority, budget, or access to the board that the role requires. VARA interviews key personnel during the review process — they will know the difference.
Before applying, VASPs must conduct a thorough risk assessment covering operational, technology, cybersecurity, and third-party risks. VARA's framework is risk-based and proportional, meaning the depth and breadth of controls must match the services offered, transaction volumes, and asset types handled.
The risk assessment must identify the organization's crown jewels — the assets, systems, and data whose compromise would cause the greatest harm. For custodial VASPs, this invariably includes private key material, wallet infrastructure, and customer identification data. For exchange operators, it extends to order matching engines, price feeds, and liquidity management systems.
A common failure ITSEC encounters is templated risk registers that list generic cyber threats without connecting them to the specific architecture, operations, and threat landscape of the applicant. VARA reviewers can identify a generic risk assessment immediately. The assessment must evaluate threats specific to virtual asset operations: private key theft through supply chain compromise, smart contract exploitation including reentrancy and flash loan attacks, oracle manipulation, front-running, and exchange rate manipulation through wash trading.
Risk assessments must be living documents — reviewed at minimum annually and updated whenever material changes occur to systems, products, or the threat landscape. VARA will ask when the last update was performed and what triggered it.
A complete information security policy framework must be developed, approved by senior management with documented evidence of approval, and operationalized across the organization. VARA expects policies covering access control aligned to ISO 27001 Annex A.9, data classification with at least four tiers mapped to handling requirements, encryption standards specifying approved algorithms and minimum key lengths, incident response with defined severity levels and escalation timeframes, business continuity and disaster recovery with tested RTOs and RPOs, change management with segregation between development, testing, and production environments, vulnerability management with defined remediation SLAs by severity, and third-party risk management with due diligence requirements proportional to criticality.
Critically, policies must be operationalized. ITSEC assesses this by checking whether staff have been trained on relevant policies with documented training records, whether compliance is monitored through periodic reviews and internal audits, whether exceptions are formally managed through a documented exception process with risk acceptance by appropriate authority, and whether policies have been updated within the last twelve months.
VARA requires VASPs to demonstrate secure technology architecture that reflects defense-in-depth principles. This is where many applicants from the startup world struggle — they have built fast and iteratively without the architectural discipline that regulated financial services demand.
Network segmentation must isolate critical systems into separate security zones. At minimum, ITSEC recommends separate zones for customer-facing applications, internal processing and business logic, wallet infrastructure and key management, administrative and management functions, development and testing environments, and security monitoring and logging infrastructure. Each zone boundary must enforce access controls through firewalls or equivalent network security appliances with explicit allow-list rules. Default-deny policies must be in place — no implicit trust between zones.
Encryption must protect data at rest using AES-256 or equivalent and in transit using TLS 1.2 at minimum, with TLS 1.3 preferred for all new implementations. Multi-factor authentication is mandatory for all privileged access and should be implemented for all staff access to production systems.
For custodial VASPs, wallet architecture and key management are the most critical cybersecurity controls. VARA expects detailed documentation of how digital assets are secured.
Hot and cold wallet segregation must follow the principle of minimum necessary exposure. Hot wallets should hold only the liquidity required for operational processing within a defined time window — typically no more than twenty-four hours of average transaction volume. All remaining assets must be in cold storage with air-gapped signing processes.
Private keys must be generated in secure environments using hardware security modules certified to FIPS 140-2 Level 3 or equivalent. Multi-signature schemes must be implemented for all high-value transactions, with signing authority distributed across multiple individuals in different physical locations. Key backup and recovery procedures must be documented, tested at least quarterly, and stored in geographically separated secure facilities. VARA may request a walkthrough of the key ceremony process including observation of HSM procedures.
The technology infrastructure underpinning AML/CFT compliance is a cybersecurity matter, not just a legal one. Transaction monitoring systems must operate in real-time or near-real-time with blockchain analytics capabilities that can trace transaction flows across addresses, identify interactions with sanctioned or high-risk wallets, detect structuring patterns, and flag velocity anomalies.
KYC systems must implement document verification with anti-fraud capabilities including liveness detection for biometric verification. All verification decisions and overrides must be logged with immutable audit trails. Sanctions screening must cover OFAC, EU, UN, and UAE sanctions lists with automated updates and real-time screening at onboarding, transaction initiation, and on an ongoing batch basis.
The security of KYC data is paramount — a breach of customer due diligence records would compromise personal data and undermine the integrity of the entire AML program. ITSEC recommends encrypting KYC data at rest with customer-specific encryption keys and implementing strict access controls that limit access to authorized compliance personnel only.
Prior to go-live and on a regular cadence thereafter, VASPs must undergo independent penetration testing covering all externally facing systems, APIs, web applications, and mobile applications. Internal network assessments, smart contract audits where applicable, and social engineering testing should all be completed and remediated before submission.
ITSEC recommends that penetration testing follows a risk-based methodology aligned to OWASP, PTES, or OSSTMM frameworks. Testing must include authentication and session management, authorization and privilege escalation, input validation and injection attacks across all entry points, business logic testing specific to financial transaction workflows, API security testing including rate limiting, authentication bypass, and data exposure, and infrastructure testing including network segmentation validation.
All findings must be classified by severity using CVSS v3.1 or equivalent, with defined remediation timeframes: critical findings within seventy-two hours, high within two weeks, medium within thirty days, and low within ninety days. VARA may request evidence of testing results and remediation completion as part of the review.
A documented and tested incident response plan is mandatory. The plan must define incident severity classifications with specific criteria, assign roles and responsibilities including an incident commander with authority to make containment decisions, establish communication protocols covering internal escalation, regulatory notification to VARA within prescribed timeframes, customer communication, and media handling.
Evidence preservation procedures must be defined to support both internal investigation and potential law enforcement involvement. Chain of custody for digital evidence must be maintained. Post-incident review must be conducted for all significant incidents with root cause analysis and lessons learned feeding back into control improvements.
Business continuity and disaster recovery plans must define RTOs and RPOs for all critical systems, with annual testing at minimum. ITSEC recommends tabletop exercises quarterly and full failover testing annually. Recovery procedures must account for scenarios specific to virtual asset operations including wallet recovery, blockchain fork response, and exchange platform restoration.
VASPs relying on cloud infrastructure, third-party custodians, blockchain analytics providers, or outsourced development must demonstrate a formal vendor risk management program. VARA holds the licensee accountable for the security of outsourced functions without exception.
Due diligence must be conducted before onboarding any vendor that accesses, processes, or stores sensitive data. This includes reviewing SOC 2 Type II reports or ISO 27001 certification, assessing the vendor's security architecture relevant to the services provided, evaluating incident response capabilities and breach notification commitments, and reviewing the vendor's own subcontractor management. Contracts must include right-to-audit clauses, security SLAs, breach notification requirements, and data handling obligations. Ongoing monitoring must include periodic reassessment and tracking of vendor compliance with contractual obligations.
ITSEC provides end-to-end VARA compliance advisory from initial gap analysis through authorization support. We have guided multiple VASPs through the complete licensing process and understand what the regulator expects versus what applicants typically underestimate. Our services include governance framework design, policy development, security architecture review, penetration testing, and audit readiness simulation. If you are preparing a VARA application, contact ITSEC to ensure your cybersecurity framework meets regulatory expectations from day one.
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