The Cryptocurrencies Regulation Series
2018 set the origin of a new era in the evolution of law as a regulatory system to normalize relations between individuals and ownable assets. Ten years after the disruption of Bitcoin, the market capitalization of virtual currencies reached more than $800 billion while disclosed the global expansion of a disruptive category of property.
This article dives into the regulation of cryptoassets in Abu Dhabi, and is part of a special series of articles that examine the most recent legal developments to regulate cryptoassets worldwide. Each article offers an overview of jurisdictions pioneers in attaining bespoke legal regimes on cryptoassets, other than AML/CFT rules or taxation regimes.
Legal developments worldwide include enacted instruments to regulate crypto-related technical standards, certification procedures, ICO’s registrations & licensing requirements, as well as other specific official instruments, such guidelines, which include relevant definitions and categorizing structures.
Abu Dhabi and the ADMG
In June 2018, the International Financial Centre in the country, the Abu Dhabi Global Market (ADGM), announced the launch of its “framework to regulate spot crypto asset activities, including those undertaken by exchanges, custodians and other intermediaries in ADGM.” According to the national authority, “this follows the successful completion of a public consultation on the introduction of a robust crypto asset regulatory framework by the ADGM Financial Services Regulatory Authority (FSRA) on 28 May 2018.”
According to the Abu Dhabi guidance “Regulation of Cryptoassets Activities in ADGM”, cryptoassets means:
A digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction. A Crypto Asset is (a) neither issued nor guaranteed by any jurisdiction, and fulfills the above functions only by agreement within the community of users of the Crypto Asset, and (b) distinguished from Fiat Currency and E-money.
Since 2017 Abu Dhabi announced a high interest in regulating virtual currencies, primary for ICOs projects. Accordingly, the country launched three main legal instruments.
First, the namely “Regulatory Framework of Stored Value and Electronic Payment System”, announced in January 2017 forbidding cryptocurrencies transactions outside of the called Financial Free Zones, such as Abu Dhabi Global Market.
Second, the “Supplementary Guidance Regulation of Initial Coin/Tokens Offering and Virtual Currencies under the Financial Services and Market Regulations”, published in 2017 and issued under section 15.2 of the Financial Services and Markets Regulations 2015; and
Third, the guidance “Regulation of Cryptoassets Activities in ADGM” published by the Financial Services Regulatory Authority in 2018.
The country adopted a technology-neutral approach for the regulation of cryptoassets and established the Spot Cryptoasset Framework, limited to the ADGM special jurisdiction and Free Financial Zone. Through the ‘Spot Cryptoasset Framework,” the country seeks to regulate cryptoassets business (Operating Crypto Asset Business — OCAB) and related activities through the application of particular legal requirements and rules upon domestic and foreign businesses pursuing local license and the authorization to operate within the ADGM. This regulatory framework, therefore, places Abu Dhabi as a jurisdiction of choice for ICO projects.
Under Abu Dhabi jurisdiction, licensing procedures regard activities involving “Accepted Crypto Assets” (ACA):
(i) Buying, selling, or exercising any right in concern to ACA.
(ii) Managing ACA belonging to another person.
(ii) Making arrangements with a view to another person buying, selling, or providing custody of ACA.
(iv) Marketing of ACA.
(v) Advising on the merits of buying or selling of ACA or any rights conferred by such buying or selling, and operating a Crypto Asset Exchange or a Crypto Asset Custodian.
Some activities are excluded from the regime on Operating Crypto Asset Business and Accepted Crypto Assets:
(i) The creation and administration of assets,
(ii) The development, dissemination, or use of software for the purpose of creating or mining cryptoassets.
(iii) The transmission of cryptoassets.
(iv) Loyalty points scheme denominated in cryptoassets, or
(v) Any other activity deemed by the Financial Services Regulatory Authority as not constituting an operating crypto asset business.
As a future outlook, several amendments and adjustments are being applied by the Financial Services Regulatory Authority on Operating Crypto Asset Business, Accepted Crypto Assets, and the country Spot Cryptocurrency Framework. Accordingly, new supplementary guidances may be published during the first semester of 2021, with more detailed rules and procedures to consolidate Abu Dhabi as a relevant jurisdiction for blockchain and crypto projects.
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