ADGM enhances guidance on regulation of crypto asset activities

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has enhanced its “Guidance for the Regulation of Crypto Asset Activities”. This is the second edition to the initial guidance published in June 2018. ADGM launched the region’s first comprehensive crypto asset regulatory framework on 25 June 2018 and has since continued to actively engage with local and international market participants on various fronts to stay abreast of developments in the crypto asset space.

The updated Guidance reinforces FSRA’s focus and commitment as a financial services regulator to support innovation and maintain rigorous regulatory practice. It includes key updates in a number of areas to take into account recent global developments. Some of the details are as follows:-

• Stablecoins/Fiat Tokens: Stablecoins that are fully backed by fiat currencies (Fiat Tokens) will be treated as a form of digital representation of money. Where used as a payment instrument for the purposes of Money Transmission as defined under the ADGM’s Financial Services and Markets Regulations 2015 (FSMR), the activity will be licensed and regulated as Providing Money Services. The Guidance also sets out the FSRA’s approach to regulating issuers, custodians and exchanges using Fiat Tokens.
• Custody: Further clarity on the types of crypto asset custody activities that can be undertaken, and setting out FSRA expectations in terms of custody governance and operations.
• Technology Governance: Further enhancements and clarifications are introduced, including in relation to changes in the underlying protocol of a crypto asset that results in a fork (coding change), and the associated governance and control expectations for crypto asset exchanges and licence holders.
• FSRA Anti-Money Laundering and Sanctions Rules and Guidance (AML): As the AML Rulebook applies in full to the regulated activity of crypto asset operators/holders, the Guidance has been updated with the latest local and global changes, and provides further clarity on the use of new regulatory and surveillance technologies in this space.

Richard Teng, chief executive officer, FSRA of ADGM, said, “Since the launch of the crypto asset framework in June 2018, ADGM has received strong support from fellow regulators globally and significant interest from players and investors seeking to operate under the ADGM crypto asset framework. The enhanced Guidance is a response to the rapidly changing technologies and crypto asset activities that we see operating globally. From our constant engagement with international stakeholders, the enhanced Guidance sets out our active approach towards the regulation and supervision of crypto asset activities, underpinning ADGM as the choice market for crypto asset growth and development. We welcome the engagement and support of the firms establishing their operations within ADGM who are looking to achieve their own growth and success.”

Under its crypto asset framework, the FSRA regulates entities operating crypto asset businesses, including activities undertaken by  crypto  asset  exchanges,  custodians  and  other   intermediaries. ADGM’s robust framework addresses the full range of risks associated with crypto asset activities, including risks relating to money laundering and financial crime, consumer protection, technology governance, custody and exchange operations.

The FSRA is preparing further guidance on digital securities for primary and secondary market consideration. The FSRA regularly reviews and updates its financial services rules and regulation to maintain a robust and highly effective market.