Abu Dhabi proposes regulatory framework for spot cryptoassets

The Financial Services Regulatory Authority of Abu Dhabi Global Market is consulting on a fit-for-purpose regulatory framework that would address a full range of risks associated with cryptoasset activities

What has happened?

Abu Dhabi is consulting on a framework to regulate spot cryptoasset activities, including exchanges, custodians and other intermediaries, to be undertaken in the financial free zone of the emirate.

What does this mean?

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) is seeking comments for "a fit-for-purpose regulatory framework" that would address a full range of risks associated with cryptoasset activities.

"For cryptoasset exchanges, it will entail proper regulation as market infrastructures addressing key risks including anti-money-laundering and counter-terrorist financing (AML/CTF), consumer protection, technology governance and safe custody," the ADGM said in a press release.

The ADGM said that this new regime would institute proper oversight over cryptoasset activities, and instil the requisite integrity and confidence needed that is largely absent from the global arena.

It also believes that 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".

From a regulatory perspective, the level of transparency that this framework fosters will help detect and supervise systemic and market-based risks, contributing to the growing global understanding and supervision of systemic risks.

Richard Teng, Chief Executive Officer of ADGM, said:

“By providing a best-in-class regime, this addresses concerns of regulators and investors alike, particularly institutional investors seeking to gain exposure to this asset class."

ADGM is seeking feedback from the public and market participants by 28 May to consultation@adgm.com.

In February, the ADGM announced it was considering a regulatory framework to supervise virtual currency exchanges and intermediaries.

The move followed a warning by the United Arab Emirates' regulator, the Securities and Commodities Authority, which cautioned investors about the risks of ICOs.

There have been multiple industry calls for a more comprehensive approach to address the risks in the crypto asset markets, notably from the International Monetary Fund and the Financial Stability Board, but formal rules have yet to be agreed.

While warning against the risks associated with ICOs, both organisations have also noted the potential for cryptoassets and the technology behind them to increase efficiency, resilience and inclusiveness in the financial markets.

In April 2018, IMF Managing Director Christine Lagarde called for international co-operation to better understand cryptoassets, which she deemed "essential" before they can be trusted to transform "financial activity in a meaningful and lasting way".

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.

John Salmon


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