The Financial Services Regulatory Authority of Abu Dhabi has declared it is open to approaches from market participants using ICOs in order to engage in dialogue to help determine an appropriate regulatory treatment of the sector.
It has issued the invitation as part of new guidance published this week on its approach to the virtual currency sector, which it said represents a “novel and potentially more cost-effective way of raising funds for companies and projects”.
Richard Teng, chief executive director, FSRA of Abu Dhabi Global Market, said: “ICOs have transformed the capital formation landscape and global regulatory frameworks are evolving to adapt to such innovation. Participants exploring the issuance of ICOs that offer real value to the market and wish to operate within our regulatory framework are encouraged to engage us early to gain insights into the applicable regulatory regime”.
Clarification for those using ICOs
The FSRA said its guidance provides clarifications for those who seek to use ICOs to raise funds, and to those who are considering investing in them, stating that ICOs which exhibit the characteristics of ‘Specified Investments’ – similar to a financial derivative, or those with characteristics similar to a security such as a share – will be treated as such within FSRA’s regulatory framework.
An entity wishing to this will have to first seek approval from the FRSA and must also publish a prospectus, similar to if it was issuing shares in an IPO. Any intermediaries dealing in ICOs and cryptocurrencies must also be approved by the FRSA.
While open to engaging with the sector, the FRSA acknowledges there are inherent risks within in, particularly from fraud, and so urged that investors take a cautious approach.
In a statement, the regulator said: “Some market players wish to use ICOs to raise funds in a transparent and robust fashion, whereas others provide very limited or no information beyond a code script, and in these latter cases the risk of fraud is extremely high. Best practice standards, particularly in the unregulated space, are therefore strongly encouraged.”
The FRSA’s guidance comes at a time when crypto currencies are increasing regulatory scrutiny and facing crack downs in some countries because of their use by criminals for money laundering and rising instances of scams to defraud investors.
China is reported to have in September ordered all exchanges of the best known crypto currency, Bitcoin, to be shut down, a move that closely followed the country imposing a complete ban on ICOs.
And last month Switzerland’s financial regulator Finma shut down three companies it said were using fake crypto currencies to scam investors out of millions of francs.
At the time, it said it was aware of at least 11 other scams engaging in similar activities and which it was seeking to close down. Dubai, meanwhile, recently issued a warning about ICOs.
In contrast, Abu Dhabi’s approach to cryptocurrencies appears to be relatively progressive and constructive. Reportedly, the FRSA is in talks with the Japanese financial regulator – which has made Bitcoin legal tender – to learn from its approach to Bitcoin.
