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Tue 10 Oct 2017 12:40 PM

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Abu Dhabi regulator issues guidance on cryptocurrencies

ADGM sets out approach to 'initial coin offerings' and digital currencies

Abu Dhabi regulator issues guidance on cryptocurrencies

Abu Dhabi’s Financial Services Regulatory Authority (FSRA) has published guidance to the market on listings of bitcoin and other cryptocurrencies.

The Abu Dhabi FRSA, part of financial free zone Abu Dhabi Global Market (ADGM), has set out its approach on ‘initial coin/token offerings’ (ICOs) and other aspects of the growing virtual currency landscape in the UAE, in a statement on its website.

The regulator explained that ICOs are a means to raise cash, much like an initial public offering (IPO) in equity markets but through the issuance of a crytocurrency rather than stock.

This is a “novel and potentially more “novel and cost-effective way of raising funds for companies and projects”, the regulator said.

It provided clarifications for those who seek to use ICOs to raise funds, and those who are considering investing in them.

It said that ICOs comprise virtual ‘tokens’ for trade, which exhibit the characteristics of ‘specified investments’ and therefore will be treated as such within the existing FSRA regulatory framework.

However, it noted that ICOs have generally been unregulated in most markets and virtual currencies such as Bitcoin viewed as risky investments. It therefore urges “caution to those seeking outsized investment returns due to their (virtual currencies’) price volatility”.

For this reason and others, the regulator said that a one-size-fits-all approach to investing in and regulating a virtual currency market is “inappropriate”.

For example, it pointed out that distributed ledger technology (DLT) – such as blockchain, through which Bitcoin and other crytocurrencies can be applied – has wide application to financial services and markets as a whole. “Virtual tokens, at their most basic, are pieces of information recorded on a DLT network,” the guidance said.

“Among others, tokens can represent a medium of exchange such as a virtual currency, a regulated financial instrument such as a share, or a person’s identity record.

“A one-size-fits-all approach to virtual tokens is therefore inappropriate.”

Richard Teng, chief executive director of the regulatory authority at ADGM, said: “ICOs have transformed the capital formation landscape, and global regulatory frameworks are evolving to adapt to such innovation.”

“Participants exploring the issuance of ICOs that offer real value to the market and wish to operate within our regulatory framework are encouraged to engage us early to gain insights into the applicable regulatory regime.”

ADGM said the regulatory authority will regularly review and update its financial services rules “to maintain an effective market”.

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