The UAE’s Securities and Commodities Authority will introduce regulations for initial coin offering (ICO) in the country by the end of the first half of 2019, a move aimed at providing companies another avenue to raise capital through crowdfunding.
The SCA, which supervises and monitors the markets, has approved ICOs as securities and will work with the Abu Dhabi Securities Exchange and Dubai Financial Market to develop trading platforms for ICOs next year.
"We have signed agreements with law firms to come up with the sandbox and rule books for the issuance of ICOs," said Obaid Al Zaabi, the SCA chief executive.
A "regulatory sandbox" is a framework that facilitates the development of the financial technology industry. ICOs are a source of capital for start-up businesses where they issue cryptocurrency tokens to investors – the same way shares are issued in an initial public offering of a company's equities.
“Legal requirements will be finished by the end of the first half of 2019… then there will be adoption of technology and development of infrastructure on the side of the exchanges.”
The SCA will facilitate Abu Dhabi and Dubai stock markets with the adoption of the latest blockchain technology, using cryptography, for the issuance of ICOs. An implementation plan will be on the ground after agreements with ADX and DFM are finalised, Mr Al Zaabi, said. "Our market is open. [ICO] registration and licensing is available for all kinds of companies, from across the world."
The most commonly traded cryptocurrency Bitcoin tumbling manifold in the past few months but Mr Al Zaabi said the regulator is not concerned about it.
“Bitcoin, Ethereum and others are not our business. We are more concerned about crypto issuance and how to bring them for trade [securities] on our exchanges,” he said.
“There is a demand… we have already received couple of requests for the issuance of the crypto assets and tokens.”
A year ago, the value of one Bitcoin reached almost $20,000 (Dh73,460). Now, it is worth about $4,000 – a massive drop from its 2017 high.
ICOs are an opportunity to finance the small- and medium-enterprises and a novel way of crowdfunding that is away from traditional tools, according to the SCA chief.
Crowdfunding is provided through the classical mechanism of internet. However, by introducing blockchain technology, the fundraising would be more secure, efficient and accurate, he said.
Smaller businesses, Mr Al Zaabi said, in particular will benefit from this technology when issuing an ICO on a trustworthy platform.
Security of cryptocurrencies has always been a concern for investors as more than $1.1 billion was lost to crypto-thefts in the first six months of 2018, according to cyber-security company Carbon Black in Massachusetts.
“SCA considers security as main priority… we are going to authorise a very selected secured asset class in a way of issuing the ICOs.
“We are a regulator, we put money in regulations and we have sufficient budget in a way of delivering our responsibility,” he said without mentoning how much SCA is spending on ICO regulations,” he said.
Mr Al Zaabi sees blockchain as a factor that could add value to the UAE’s current systems and markets infrastructure.
“It will introduce added layers of security and efficiency. Especially the fast-changing local markets and volatile financial markets need international technologies like blockchain to increase transaction speeds and reduce overall costs.”