ADGM Reviews, Considers Regulatory Regime for Virtual Currency Exchanges and Intermediaries

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) is reviewing and considering the development of a robust, risk-appropriate regulatory framework to regulate and supervise activities of virtual currency exchanges and intermediaries.  In considering such a framework, the FSRA intends to consult and work closely with industry participants and relevant professional bodies.

The FSRA first issued a Guidance [link] on its regulatory approach to Initial Coin/Token Offerings (ICOs) and virtual currencies under the Financial Services and Markets Regulations (FSMR) on 9 October 2017.

The FSRA’s Guidance stipulates that ICOs comprising tokens which exhibit the characteristics of Specified Investments will be regulated as such within FSRA’s regulatory framework. The Guidance sets out that virtual currencies are treated as commodities, where the derivatives trading of virtual currencies is regulated under the FSMR while spot trading of virtual currencies is not.  The Guidance advises caution to consumers seeking outsized investment returns from trading in virtual currencies due to their price volatility.  In the Guidance, the FSRA also recognises that ICO tokens and virtual currencies do not always fit neatly into existing regulatory classifications and welcomes engagement from the industry regarding those areas where our rules are unclear.

The FSRA notes that virtual currencies, although not legal tender, are gaining interests globally as a medium of exchange for goods and services.  However, there are risks and concerns.  Given the anonymous and cross-border nature of virtual currency transactions, they are particularly vulnerable to money laundering and terrorist financing risks, as well as other financial crimes.  Incidents of cyberattacks and cybercrime are also on the rise.  Several regulators and anti-money laundering bodies in jurisdictions including Australia, the EU, Japan, Singapore and the UK have introduced or proposed regulations to address such risks.

Until further updates, the FSRA reminds market participants using ICOs and virtual currencies to approach FSRA to discuss appropriate treatment within the regulatory regime.

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