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  • Part IV – Staking from Custody Services Rules

    • A. Compliance with Staking from Custody Services Rules

      1. VASPs Licensed by VARA to carry out Custody Services may only provide Staking from Custody Services, if explicitly authorised to do so by VARA, and such authorisation is expressly stipulated in their Licence. VASPs will be subject to licensing and/or supervision fees incremental to the fees for Custody Services in Schedule 2 of the Regulations, or other fees published by VARA, as amended from time to time, in order to be able to undertake the regulated activity of Staking from Custody Services.
      2. VASPs that are authorised to provide Staking from Custody Services must comply with this Part IV of this Custody Services Rulebook, at all times, when providing these services.
      3. Staking from Custody Services is regarded by VARA to form part of the Custody Services that a VASP provides. As such, all VASPs providing Staking from Custody Services must continue to comply with all other Rules relating to Custody Services throughout the provision of Staking from Custody Services, for all Virtual Assets to which the Staking from Custody Services relate.
      4. For the avoidance of doubt, VASPs Licensed by VARA to carry out Custody Services that are also authorised to provide Staking from Custody Services, may only provide Staking from Custody Services for Virtual Assets for which they are providing Custody Services.
      5. VASPs Licensed by VARA to carry out Custody Services that are also authorised to provide Staking from Custody Services, may provide Staking from Custody Services through the same legal Entity. For avoidance of doubt, such authorisation for, and provision of Staking from Custody Services is considered to be sub-set of the Custody Services Activity, and is hence not subject to the requirement for a separate legal Entity stipulated under Rule III.B.5 of this Custody Services Rulebook.
      6. VARA shall have the right to suspend or revoke any authorisation granted to a VASP to provide Staking from Custody Services, in respect of any specific DLT, or in its entirety across all DLTs, upon reasonable grounds VARA deems appropriate.

    • B. Client instructions

      1. VASPs providing Staking from Custody Services must comply with Rule III.A.3 of this Custody Services Rulebook, and continue to act only on explicit instructions received from their clients throughout the provision of such services, including when they are required to vote or otherwise participate in the governance of any DLT on behalf of their clients.
      2. If a VASP wishes to obtain and rely on any pre-authorised instruction from a client, the VASP must consider all reasonably foreseeable circumstances where such instruction is likely to be used by the VASP as authorisation, and the VASP must communicate all such circumstances clearly to the client, prior to the client providing such instruction.  All pre-authorised instructions sought or obtained by a VASP must be sufficiently detailed, accurate and relevant for the client to understand both the circumstances in, and actions for which such instructions will be relied upon by the VASP.
      3. Staking from Custody Services cannot be provided on an ‘opt-out’ basis, and the activity may only be initiated after the VASP has received a client’s specific instruction to do so.

    • C. Segregation and safekeeping of Virtual Assets

      1. Segregated client VA Wallets. VASPs providing Staking from Custody Services must ensure that each client’s Virtual Assets remain segregated in separate VA Wallets containing the Virtual Assets of that client only, throughout the provision of such Staking from Custody Services, as required under Rule III.B.3 of this Custody Services Rulebook.
      2. Single client per node. VASPs providing Staking from Custody Services must ensure that no client’s Virtual Assets are pooled or otherwise combined with Virtual Assets of any other clients of the VASP or any other party[ies], whether to meet any minimum requirements of a given DLT or otherwise, and each node or instance of a DLT managed, operated or otherwise made available by the VASP may only hold, be delegated, or have committed to it, Virtual Assets belonging to that client only.
      3. Safekeeping of Virtual Assets. VASPs providing Staking from Custody Services remain responsible to their clients for the safekeeping of the Virtual Assets for which Staking from Custody Services is being provided.
      4. Control of withdrawal keys. VASPs providing Staking from Custody Services must maintain control of the cryptographic keys and/or other mediums or methods through which the Virtual Assets may be withdrawn, or otherwise no longer ‘staked’.

    • D. Node management

      1. VASPs providing Staking from Custody Services must use all commercially reasonable endeavours to ensure all operational, maintenance or other requirements for participation [including, but not limited to, hardware, software, connectivity and upgrades of the same] determined by the relevant DLT are met in respect of Staking from Custody Services, in order to minimise the risk of ‘slashing’ or other penalties being incurred in respect of the Virtual Assets, for which the VASP is providing such Staking from Custody Services.
      2. VA Wallet management. VASPs providing Staking from Custody Services shall continue to comply with all requirements in Rule III.C of this Custody Services Rulebook, and the above Rule IV.D.1 of this Custody Services Rulebook applies in addition to those requirements.
      3. Outsourcing. In addition to the requirements in Rule III.D.3 of this Custody Services Rulebook, VASPs shall ensure that all third-party services used by the VASP in the provision of Staking from Custody Services, comply with Part IV of the Company Rulebook.

    • E. DLT Standards

      1. VASPs providing Staking from Custody Services shall establish standards for the DLTs for which it provides, or the DLTs it uses to provide Staking from Custody Services [DLT Standards].
      2.

      DLT Standards shall include, but not be limited to—
       

      a. security and immutability of the DLT protocol, including its level of centralisation, reliance on a single Entity, or any potential single points of failure;
      b. operating history of the DLT, including any periods of disruption or downtime;
      c. soundness of the staking protocol and operation, including the duration for which it has successfully been active;
      d. source of any rewards being offered by the DLT or any other party for a user’s participation, including whether such rewards are derived from the fees paid by users of the DLT, or from other means;
      e. the VASP’s ability to maintain all operational, maintenance or other requirements for participation;
      f. its design, features and use cases, whether or not intended by relevant developers;
      g. any features that present a risk of materially affecting a VASP’s compliance with applicable laws, Regulations, Rules or Directives, including but not limited to those relating to AML/CFT, sanctions, security and intellectual property;
      h. regulatory treatment by VARA and other appropriate authorities [including those outside of the Emirate];
      i. future development plans [e.g. “roadmap”] of the DLT as communicated by relevant developers, and whether such developments may have an impact [positive or negative] on, or relevance to, any of the above factors;
      j. potential or actual conflicts of interest that may arise should a VASP provide any Staking from Custody Services in relation to the DLT, and relevant mitigations provisioned for such instances;
      k. background of the founders, management, and current core developers of the DLT, including, but not limited to, relevant experience in the Virtual Asset sector, and whether they have been subject to any investigations, penalties, or claims in relation to fraud or deceit etc.; and
      l. any additional factors that the VASP may require to be considered.
       
      3. VASPs providing Staking from Custody Services shall take all reasonable steps, including but not limited to conducting relevant due diligence, prior to the provision of such services in respect of a DLT, to ensure the DLT meets all their prescribed DLT Standards.
      4. VASPs providing Staking from Custody Services must actively monitor all DLTs for which Staking from Custody Services is provided, for continued compliance with their DLT Standards.
      5.

      Upon becoming aware that a DLT no longer meets a VASP’s prescribed DLT Standards, the VASP must—
       

      a. notify all affected clients and VARA immediately;
      b. cease accepting new Virtual Assets for Staking from Custody Services in respect of that DLT immediately;
      c. determine a course of action with such affected clients to cease all Staking from Custody Services for that DLT, as soon as practicable;
      d. continue to provide such Staking from Custody Services in accordance with this Part IV of this Custody Services Rulebook throughout the agreed course of action, and until such services have been effectively concluded;
      e. keep VARA informed of all actions being taken throughout such course of action; and
      f. take all other steps as VARA may direct.
       
      6. VASPs providing Staking from Custody Services shall also set and implement conditions, under which the VASP will suspend accepting new Virtual Assets for Staking from Custody Services which, as required under Rule IV.E.5 of this Custody Services Rulebook above, must include where a DLT no longer meets the VASP’s DLT Standards.
      7. VASPs must maintain all records relevant to such assessments under this Rule IV.E of this Custody Services Rulebook for eight [8] years, and provide such records for VARA’s inspection upon request.
       

    • F. Risk disclosure statement

      1. VASPs providing Staking from Custody Services must provide each client with a risk disclosure statement explaining (i) that Virtual Assets for which Staking from Custody Services is being provided, may be at risk of loss, reduction or penalty, (ii) the types and nature of such risks, (iii) the circumstances in which such risks may arise, and (iv) the likelihood and severity of consequences that may be suffered.
      2. The risk disclosure statement required under Rule IV.F.1 above, of this Custody Services Rulebook must be separate from the Client Agreement, and VASPs must independently obtain confirmation of the acceptance of such risk disclosure statement from each client, prior to the VASP providing Staking from Custody Services to that client.
       

    • G. Client Agreements

      1.

      In addition to all requirements in respect of Client Agreements in the Market Conduct Rulebook, and under Rule III.D of this Custody Services Rulebook, VASPs providing Staking from Custody Services shall include the following, to the extent applicable, in Client Agreements in respect of Staking from Custody Services—
       

      a. a description of the Virtual Assets for which Staking from Custody Services is being provided to such extent that the details are sufficient to identify them;
      b. operational, maintenance or other requirements for participation [including but not limited to hardware, software and connectivity] of the DLT[s], for which Staking from Custody Services is being provided, and that the VASP undertakes the responsibility to meet those requirements when providing such services. This Rule IV.G.1.b of this Custody Services Rulebook can be largely met by providing links to publicly available sources of where such information is officially maintained, for example DLT website or source code repository etc.;
      c. respective rights of the VASP, the client and any other Entity involved in the Staking from Custody Services, in respect of Virtual Assets that are the subject of the Client Agreement;
      d. a detailed description of the source of all rewards received by clients from the Staking from Custody Services, including whether such rewards are generated solely from fees paid by users of the DLT, or whether such rewards are derived from any other source;
      e. proceeds to be paid or become payable, and in the case of variable proceeds, the method of calculation, factors that impact the amount, volatility and timing of the proceeds, and how and when such variations will be communicated by the VASP to its clients, including all rights that the client has to influence decisions at each stage;
      f. all fees to be charged for Staking from Custody Services, and the calculation thereof;
      g. rights of the client to withdraw or directly control decisions pertaining to any Virtual Assets, in respect of which Staking from Custody Services is provided, and any conditions/ circumstances under which the client may be unable to do so;
      h. statement explaining that Virtual Assets in respect of which Staking from Custody Services is provided may be at risk, including the types and nature of such risks, as well as the likelihood and severity of any losses that may be suffered;
      i. rights, if any, of the VASP to vary the terms of the Client Agreement;
      j. rights of the VASP and the client to terminate the Client Agreement, circumstances under which these rights can be activated, and the consequences of such termination;
      k. full details of the VASP’s client complaints procedure; and
      l. statement explaining whether the VASP receives any remuneration, discount or other benefit for using any third party [with a disclosure of specific Entities where applicable], in the course of the provision of the Staking from Custody Services.