Abu Dhabi Global Market has received interest from global crypto asset players for the framework it is developing to regulate trading of digital assets as the capital's financial hub works to create a safe market place for digital currencies.
"A lot of responsible crypto asset players are looking for a good regulatory regime," Richard Teng, the chief executive of Financial Services Regulatory Authority at ADGM told The National in an interview in Beijing this past weekend. "They want to do the right thing: good regulations, good governance … safe environment to set up their [digital currency] exchanges and allow investors to partake in it. What we want are really serious-minded, responsible players to establish a safer market place."
The FSRA, the regulator of ADGM, in April 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.
The FSRA is seeking industry comments for the “fit for purpose” regulatory framework that effectively addresses a full range of risks associated with crypto asset activities. 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 in a statement at the time.
Mr Teng declined to speculate on when ADGM could have a crypto currency exchange set up after the one-month public consultation period on its regulatory paper is over. The ADGM, which is a key pillar of Abu Dhabi’s agenda of economic and financial diversification away from hydrocarbons, is receiving a lot of inquiries on the framework and “we are working with different players on that front”, he said.
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The discussions, with international players range from digital currency exchanges, to custody and advisory businesses and FSRA has shared the draft with other international regulators as well.
“We are working with stakeholders to understand, what it really takes to regulate the crypto spot market well,” Mr Teng noted.
“It’s really international players from all over the world including US, Europe, UK. They are top respected names globally.”
The dramatic growth of digital 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. However, extreme price volatility and cyber thefts have forced a number of regulators across the world to voice concern about their trading.
The ADGM regulator earlier this year also echoed concerns raised by the UAE's market regulator Securities and Commodities Authority, which warned investors against any fundraising done through cryptocurrencies, be it initial coin offerings, initial token offerings, token pre-sale or token crowd-sale.
There have been multiple industry calls for a more comprehensive approach to address this issue, especially from the International Monetary Fund and the Financial Stability Board, and Mr Teng said the global regulatory sentiment to crypto assets has changed quite significantly in recent times.
“It has shifted a fair bit among regulators to say we need to look at this asset class as it is going to stay and how best we can regulate it,” he said. “Previously they thought it will go away.”
When asked if these regulations serve as the foundations for ADGM to become a digital currencies trading hub in the region, Mr Teng said ADGM aims to support innovation and growth and “to us crypto assets are an another asset class that is gaining traction and we do feel that it is responsible of us to regulate them responsibly and adequately”.
By and large, institutional investors have steered clear of investments in virtual currencies and it has been a domain for mostly retail investors.
“You need to bring in the institutional investors and to do that you need to address the risks properly and that’s what we are trying to do [with the regulations],” he said. “Only then you will see more stability in the price [of crypto assets].”
