ADGM begins consultation on regulations for crypto activities

The market is proposing a “fit-for-purpose” framework that addresses the full range of risks associated with crypto asset activities

Abu Dhabi Global Market and Hong Kong Monetary Authority will jointly promote financial technology prospects and opportunities. Mona Al Marzooqi / The National

Sarmad Khan

Apr 30, 2018

The Financial Services Regulatory Authority, the regulator of Abu Dhabi Global Market, on Monday published a consultation paper on a proposed framework to administer spot crypto asset activities, including exchanges, custodians and other intermediaries, to be undertaken in the financial free zone of the emirate.

“The FSRA is seeking to instil proper governance, oversight and transparency over crypto asset activities,” Richard Teng, chief executive, FSRA of ADGM, said in a statement. "Our proposed regulatory regime is only possible with our deep understanding and knowledge of the solutions available to address the respective risks and represents the most comprehensive regime proposed by global regulators so far."

ADGM is seeking industry comments for the “fit for purpose” regulatory framework that effectively addresses a full range of risks associated with crypto asset activities, it said. For crypto asset exchanges, the framework will entail proper regulation, addressing key risks including anti-money laundering and counter-terrorist financing, consumer protection, technology governance and safe custody, ADGM said.

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The dramatic growth of digital asset and crypto asset markets has been transformational for financial markets. Initially intended as a medium of exchange requiring no central counterparty, crypto assets such as Bitcoin have evolved to become alternative investments for investors seeking returns in this asset class.

In February, ADGM said that it was considering a governing framework to supervise virtual currency exchanges. The announcement followed the preliminary guidance on initial coin and token offerings that the FSRA made last October. The latest proposal supplements the FSRA’s October guidance.

The ADGM regulator, however, earlier this year echoed concerns raised by the UAE's Securities and Commodities Authority, which warned investors against any fundraising done through cryptocurrencies, be it ICOs, initial token offerings, token pre-sale or token crowd-sale.

There have been multiple industry calls for a more comprehensive approach to address the risks in the crypto asset markets, especially from the IMF and Financial Stability Board.

FSRA, however, advocates a comprehensive regulatory framework and a well-regulated regime that assures crypto asset activities are subject to proper oversight, addresses inherent risks and adheres to high standards.

“A fair, credible and effective regime will enable participation not only from retail and accredited investors that are active in seeking exposure, but facilitate participation from institutions and corporates that have been largely absent due to inability to address the risks involved,” ADGM said.