Back in May 2020, Koine a digital asset custodian and settlement entity announced that it had been awarded in principle approval to provide custody services in relation to virtual assets in ADGM (Abu Dhabi Global Market).
This is an important step given that ADGM will be licensing several virtual asset exchanges in the near future. This is also significant given the rising demand by institutional investors willing to invest in virtual assets, digital securities and crypto assets.
In the announcement, Dominic Longman, CEO, Koine, Middle East, said “I am extremely excited to be returning to Abu Dhabi with Koine, to build out this key financial infrastructure that can support not just those first virtual assets but all asset classes as they move to tokenized/blockchain technology.”
UNLOCK interviewed Mr. Dominic Longman Chief Executive Officer KOINE MENA recently to learn more about their announcement and future plans in the region.
UNLOCK started the interview with the question of why UAE and GCC? According to Longman, “As Koine we currently have an EMI (Electronic Money Institution license in the United Kingdom, but as of yet do not have a custodial license in the UK. In addition we noticed that there are increased capital flows from Asia to Africa and Balkan region as well as from China to these countries, so we believe the region is on the cusp of a changing financial world and the UAE, which has grasped the digitization of finance, is a hub.”
He adds, “The UAE’s vision for financial services, along with its regulatory quality, sizable financial assets, embrace of digitalization and its geo-positioning are the key factors. We very much see this as a partnership between government and other local businesses. ADGMs regulation, being some of the most progressive and focused for all virtual assets globally and Abu Dhabi’s vision for 2030 made it stand out as the place to seek regulation for MENA.”
According to Longman many large finance players are making commitments in the region which has become on the biggest non dollarized trading hubs. He states, “We want to be a key infrastructure provider for the backbone of new asset classes as part of UAE 2030 vision.”
It is not the first time that Longman has worked in the region and specifically in Abu Dhabi for nearly two years he worked with Abu Dhabi Investment Authority before moving to co-found Trustology in the UK.
Koine is only seeking a virtual asset custodial license in ADGM unlike other virtual asset exchanges who are seeking both an exchange license and custodial license. When asked about this Longman explained, “We believe that it is critical to have segregation between exchanges and custodians, settlement and CSD to allow for institutional uptake. We intend to support exchanges, prime brokerages, and investment banks, unlike existing custodians we will never offer credit but will facilitate credit provisioning by third parties.” He adds, “As more companies come through I believe that exchanges acting as custodians might change in Abu Dhabi as increased risks involved when it comes to customer protection because anytime virtual assets are moved to another venue there is a risk point involved.”
Koine sees itself as a standard piece of basic infrastructure to support digital finance across capital markets and wholesale payments. We let others add value on top of us.
Longman claims, “We are strong believers in the tokenization of assets, security tokens, real-estate tokens and as such we believe all asset classes will be impacted by digitization. Using Koine customers can have their assets custody and settled in UAE yet their assets are being traded across global venues.”
Koine boasts of one of the most secure platforms for custody and settlement that allows instantaneous settlement as Koine utilizes direct connections to exchanges with no need to utilize the internet thus reducing the risk of hacking.
As for the launch date, Longman states, “We expect to have local operations live towards the end of 2020, as we can satisfy all the requirements especially that of liquidity since we are already a fully operational business in the UK, even though there will be changes in policy to meet specific FRSA requirements.”
While ADGM is granting licenses in the UAE for virtual asset exchanges and custodians, these licenses are offshore licenses. The UAE Central Bank and the Securities and Commodities Authority in the UAE have yet to finalize their crypto asset regulation.
To some this is a hindrance given they might not be able to open bank accounts or deal with the banking sector in the UAE. Longman explains to UNLOCK, “The Central Bank position has made it clear that local banks can support businesses in this field if they want to and in accordance to their own due diligence, so the lack of formal law and policies from central Bank in UAE doesn’t stop us from launching.”
In the short term, Koine may have to use offshore accounts with globally recognized banks, while those relationships with local financial institutions are established.
The landscape in the UAE is looking to become competitive, UNLOCK asked Longman about how Koine views the competition from virtual asset exchanges who also hold custodial licenses, as well as other companies seeking custodial licenses. His reply, “We are aware that there are others who are seeking virtual asset custodial license in ADGM, and this will benefit the ecosystem. We believe our key differentiator is that we are able to offer a digital post-trade solution that is operationally scalable, secure, and meets the needs of institutional capital.”
He adds, “Crypto custody service in the traditional sense is pretty much done, the move is now towards digital asset servicing, asset lending, management and settlement.