Key Theme(s) – ADGM; UAE; Crypto Assets; and Regulatory Framework.
The UAE, in particular Abu Dhabi, have begun seriously considering the impact of crypto asset activities within its marketplace. A growing sector, considered to be at the forefront of financial technology, crypto activities are considered to be activities in relation to digitally secured representation of value; e.g. cryptocurrencies such as Bitcoin and Litecoin. The Financial Services Regulation Authority (FSRA) of Abu Dhabi Global Market (ADGM) initially consulted on crypto assets in May 2018. Following a successful consultation, the ADGM launched a crypto asset regulatory framework in June 2018. Such framework was intended to offer guidance with particular focus on money laundering and financial crime arising out of crypto asset activities and the subsequent requirement of customer protection.
On 14 May 2019, the ADGM released further guidance updating its previous position by providing more detail and focus on Stablecoins; Fiat Tokens; custody activities; and anti-money laundering (AML). The FSRA CEO, Richard Teng, stated that such update in guidance was required to ensure global reality was accurately reflected to keep the FSRA in line with "rapidly changing technologies".
Updates to guidance
Some of the updates to the guidance include:
- Stablecoins / Fiat Tokens: the ADGM has set out that the use of stablecoins backed by fiat currencies will be licensed and regulated. Stablecoins / Fiat tokens are cryptocurrencies designed to minimise any volatility in price of such currencies and therefore controlling such activities will provide a more reliable approach encouraging investors;
- Custody Activities: further guidance is given by ADGM clarifying how best to tackle problems associated with storing and managing cryptocurrencies; and
- AML: whilst already dealt with in the initial June 2018 guidance, the update provided reflects the latest local and global changes to AML, and provides direction on the use of new technologies within this remit.
The issuing of such new guidance highlights the ADGM's commitment to new technologies and emerging sectors whilst ensuring comprehensive regulatory safeguards. In the UK, the Financial Conduct Authority (FCA) have recently consulted on the subject and guidance is due to be published later this year. With the recent hack of a large currency exchange, Binance, where hackers stole in excess of $40m worth of Bitcoin, the timing of this guidance shows how important it is for all regulatory authorities to move with the times and consistently provide up-to-date guidance.
As this market emerges and develops, the guidance required will change rapidly and in order for countries to boast being at the forefront of such movements, the underlying regulatory framework will be key to guiding the market on its development. Investors will seek jurisdictions and infrastructures in which to test these activities and the issuing of this guidance by the ADGM illustrates Abu Dhabi's desire to be involved in the development of this sector at an early stage. A key focus of the guidance on the security of such technology sets the tone for other markets, such as the UK, to consider the best approach in encouraging investment whilst providing assurances to the validity and preservation of crypto activities. The UK FCA will likely be taking note of this newly published ADGM guidance.