MENA region poised to be a center for Digital Exchanges

RAIN Exchange in Bahrain to launch to public in Q2 2019 after final regulations are launched

During the UNLOCK Blockchain forum held on Jan 15-16 2019 in Dubai UAE, a panel of experts that included Mr. Bart Brands, President, European Blockchain Foundation, Mr. Leon Smith, Chief Executive Officer DEX exchange in the UAE, Mr. Abdullah AlMoaiqel, Co-Founder & Partner, Rain, Kingdom of Bahrain, Mr. Sergey Vostrikov, Managing Partner, Memorandum Capital, Poland and Mr. Vickneswaran Gowribalan, Co-Founder & CEO, GRIP Investments, UAE discussed the advent of security token offerings and how this fits into a regulated environment.

According to Sergey Vostrikov one of the main differentiating factors today between STOs and former utility tokens or ICOs is that while utility tokens are an artificial invention used to raise funds, STOs are a new kind of investment tool that will revolutionize the financial world. STOs are the new paradigm in the financial market. Bart Brand agrees that STOs require a bigger imagination and regulators are trying to imagine what needs to happen in terms of rules, and while they are trying to make the rules they are confronting a reality that is moving faster and exceeds their imaginations. As he stated, “In Europe we are trying to find out the best regulatory framework, I believe that FINMA report released a few days ago show the novelty of the Swiss approach because they take on a principled approach and principles can always be met, whereas the Dutch are trying to contain something that has already broken free, an even their most advanced regulations are already outdated.”

Leon Smith further explained the need for STOs as it is a nascent way for digitizing physical assets examples includes real-estate. He states, “Instead of offering a REIT now you can offer alternative investment with fractional ownership, and this is how we can distinguish between traditional equities and security tokens.

With the advent of STOs, the role of digital exchanges becomes key. Abdullah AlMoaiqel explains, “Regulations are an essential element in the success of STOs, as they have been created to offer protection for consumers, investors and stakeholders who are involved in the issuance. What makes STOs different than traditional equities is that it allows for Small to Medium sized businesses the opportunity to raise funds in transparent way just like an IPO” He adds “ regulated exchanges become essential because they are responsible for providing the marketplace for that instrument. These exchanges will allow SMEs to crowd fund while ensuring due diligence and accounting practices are met. The RAIN exchange has been working with the Central Bank of Bahrain through sandbox to fit into their existing framework while the central Bank has made an effort to create their own framework for crypto asset platforms to help institutions make these investments in digital assets.”

In the UAE both DIFC Fintech Hive as well as ADGM have made efforts to create sandboxes to help build regulations rather than give guidance. The importance of regulated digital asset exchanges is paramount. As AlMoaiqel states, “ The primary difference between traditional exchanges and digital asset exchanges is that in digital exchanges investors always maintain and carry the underlying asset they have, especially when regulated. Digital asset exchanges don’t practice fractional ownership by selling it twice or loaning it out. Once the investor buys an asset it is theirs and they can withdraw and maintain custody themselves or even send it to another exchange”

Vickneswaran Gowribalan believes that the MENA region is well poised to be at the forefront when it comes to STOs and regulated digital exchanges given the fact that there is hardly any taxation on the sale and purchase of digital assets. Bart Brands agrees that taxation can be a burden on the development of digital asset classes and exchanges. However Sergey Vostrikov stresses that the key to adoption will remain clear regulation because people are happy to pay taxes as long as they can assess the risk involved. ADGM (Abu Dhabi Global Market Authority) has set clear regulations and have pioneers. Sandboxing by regulators in the MENA region has also been a good example of how regulators can work with businesses together on creating environments that are conducive to the trade of STOs and digital assets.

As the topic of STOs continues to flourish, the MENA region awaits the launching of the first regulated Digital exchange RAIN in the Kingdom of Bahrain. According to Mr. Abdullah AlMoaiqel, “We have carried out all the procedures needed with the Central Bank of Bahrain through our participation in the sandbox; we are no awaiting the issuance of their framework in order to be able to serve the public. The Central Bank recently published the draft regulations awaiting feedback from stakeholders and we believe the final and full regulations will be out in a couple of weeks and in Q2 of 2019 we will launch to the public.