ADGM’s financial regulator publishes guidelines to regulate virtual assets

New rules are aimed at providing clarity to investors on regulations and tools to mitigate risks

The Abu Dhabi Global Market introduced the world’s first comprehensive virtual asset regulatory framework in 2018 for the trade of virtual assets by businesses. Victor Besa / The National

The Financial Services Regulatory Authority (FSRA), the regulator of Abu Dhabi's financial hub, the Abu Dhabi Global Market (ADGM), has published guiding principles on its approach to virtual asset regulation and supervision to outline its expectations for the asset class and service providers in the sector.

The principles will complement ADGM’s regulatory framework for spot virtual asset activities, the financial regulator said in a statement on Monday.

They also aim to enable greater regulatory collaboration and cohesion between the FSRA and other authorities in the UAE and globally.

“These guiding principles will provide greater clarity to investors, other regulators, industry and the wider public of our approach to regulation in this area and key expectations we have set on current virtual asset service providers in ADGM and potential applicants,” said Emmanuel Givanakis, chief executive of the FSRA.

“They also outline the tools we have at our disposal to mitigate the material risks that are born from these activities and the regulatory powers to identify and act upon any misconduct. These principles make clear the high standards of our framework at a time of increased volatility and regulatory focus.”

In 2018, ADGM introduced the world’s first comprehensive virtual asset regulatory framework for the trade of virtual assets by businesses. It has since attracted a number of major companies dealing with cryptocurrencies to set up base in its regulated financial free zone.

Last December, it granted regulatory permission to virtual asset trading platform Hayvn. Binance, the world’s largest cryptocurrency exchange, also received in-principle approval from the ADGM to operate as a broker-dealer in virtual assets in the UAE capital.

Central banks around the world have been reluctant to endorse cryptocurrencies because of their high volatility, speculative nature, lack of value and regulatory oversight. The UAE Central Bank also does not recognise cryptocurrencies as legal tender.

In March, a global survey by market research company YouGov found that 67 per cent of UAE residents are interested in investing in cryptocurrencies within the next five years.

About 21 per cent of Emirates' respondents said they intend to trade in cryptocurrency in the next 12 months, the third-highest proportion in the world behind Indonesia and India, according to the survey, which polled 20,000 people in 18 countries.

Along with India, trust in cryptocurrencies among consumers in the UAE, at about 40 per cent, is the highest globally.

The guiding principles can inform and educate the investor community and the general public about the regulatory actions the FSRA can take to identify and respond to underlying risks, the agency said.

Each principle is a declaration of the FSRA’s risk appetite in the areas of regulation, authorisation, financial crime, supervision, enforcement and international co-operation, the statement said.

They will be of particular relevance to potential applicants to ADGM and other regulators with an interest in this area, it said.

“ADGM is committed to engaging with the industry to support its continuous transformation and innovation,” the agency said.

“The focus remains on maintaining a dynamic yet robust regulatory framework and approach that can respond to changes in the sector’s risk profile. Recognising the cross-border nature of the asset class, the FSRA believes that ongoing co-operation between regulators is imperative to prevent harmful regulatory arbitrage.”

In March, Dubai adopted the Dubai Virtual Asset Regulation Law, which aims to create an advanced legal framework to protect investors and provide international standards for virtual asset industry governance that promotes responsible business growth in the emirate.

Dubai also established the Virtual Asset Regulatory Authority as an independent authority to regulate the sector throughout the emirate, including special development zones and free zones but excluding the Dubai International Financial Centre.

The authority, which will also be responsible for licensing, has legal and financial autonomy over the virtual asset sector, which includes cryptocurrencies such as Bitcoin and non-fungible tokens, and is linked to the Dubai World Trade Centre Authority.

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