Abu Dhabi Watchdog Introduces Regulatory Framework For Cryptocurrencies

News, Regulation | April 30, 2018 By:

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has proposed a legislative framework to regulate crypto asset activities, including exchanges, custodians and other intermediaries.

Dubbed “Spot Crypto Asset Framework,” the proposed regulation aims to address the new risks posed by cryptocurrency trading. For crypto exchanges, it will entail proper regulation as market infrastructures addressing key risks, including anti-money-laundering (AML) and counter-terrorist financing (CTF), consumer protection, technology governance, and safe custody.

The FSRA said that a fair, credible, and effective regime will enable participation not only from retail and accredited investors that are active in seeking exposure, but will “facilitate participation from institutions and corporates that have been largely absent due to inability to address the risks involved.”

“From a regulatory perspective, the level of transparency that this framework fosters will assist in the detection and supervision of systemic and market-based risks, contributing to the growing global understanding and supervision of systemic risks as sought by global bodies, including the International Monetary Fund (IMF) and Financial Stability Board(FSB),” the FSRA said.

If the regulation is implemented, crypto exchanges will have to pay the FSRA a $125,000 authorization fee and a $60,000 supervision fee. They will also be subject to pay a monthly trading levy equal to 0.0015% of daily trading value. The FSRA is also considering the establishment of a compensation scheme in the future, aimed to assist with compensation of crypto exchanges clients who have suffered a loss in certain circumstances, and is proposing to apply a proportion of the trading levy towards this scheme.

Richard Teng, CEO, FSRA of ADGM, said that the FSRA is seeking to instill proper governance, oversight, and transparency over crypto asset activities. He said in their outreach and engagement, many established and responsible participants engaged in crypto asset activities are seeking to be properly regulated by observing high standards on customer protection, custody, and technology governance.

“By providing a best-in-class regime, this addresses concerns of regulators and investors alike, particularly institutional investors seeking to gain exposure to this asset class,” said Teng. “Our proposed regulatory regime is only possible with our deep understanding and knowledge of the solutions available to address the respective risks, and represents the most comprehensive regime proposed by global regulators so far.”

The Spot Crypto Asset Framework supplements the FSRA’s guidance on initial coin offerings (ICO) and cryptocurrencies, which was released in October 2017. ICOs comprising tokens which exhibit the characteristics of securities will continue to be treated as such within FSRA’s regulatory framework. Crypto assets, while continuing to be treated as commodities from a regulatory policy standpoint, will be subject to this new crypto asset regulatory framework.