The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) recently updated its governance of crypto assets. In May 2019, the Authority released the second edition of its “Guidance for the Regulation of Crypto Asset Activities.” The regulation focuses on the FSRA’s oversight of crypto assets and related financial services that occur within the ADGM.
Last year, the ADGM released the first edition of its Guidance when it launched its comprehensive regulatory framework that oversees digital assets on June 25, 2018. The ADGM issued these new policies under section 15(2) of the Financial Services and Markets Regulations 2015 (FSMR).
The ADGM created the framework to address the full range of risks that crypto asset activities present for traders. These risks include money laundering, financial crimes, technology governance, consumer protections, custody, and exchange operations.
The FSRA notes that the new regulations will provide more clarity about crypto assets in light of recent technology developments.
The document addresses consumer protection, safe custody, technology governance, and disclosure/transparency. Additionally, they addressed Market Abuse and the regulation of Crypto Asset Exchanges in a regulatory approach similar to how global exchanges oversee securities and derivatives.
The FSRA’s enhanced Guidance applies to four types of persons:
- Applicants for a Financial Services Permission to conduct Regulated Activity of Operating a Crypto Asset Business (OCAB) in the ADGM.
- Authorized Persons (AP) that carry on Regulated Activity of Operating a Crypto Asset Business in or from ADGM.
- APs that use Stablecoins, and Recognized Investment Exchanges with stipulations on Recognition Orders that permit them to carry on the Regulated Activity of Operating a Crypto Asset Business within the ADGM
- Applicants/Authorized Persons that use Stablecoins in or from the ADGM.
The main features of the enhanced regulations are:
- Stablecoins/Fiat Tokens: A Stablecoin is a cryptocurrency that has price-stable characteristics. This digital currency has increased in popularity during the past two years. Stablecoins are cryptocurrencies that have stable price characteristics. They are fully backed by fiat currencies, like the USD, or pegged against the consumer price index (CPI). FSRA will treat this currency as digital representations of money. The group defines the use of Stablecoins for Money Transmission purposes in its Financial Services and Markets Regulations 2015 (FSMR). They will license and regulate this activity as Providing Money Services. This Guidance also outlines the FSRA’s regulations of all issuers, custodians, and exchanges using Fiat Tokens.
- Custody: The FSRA clarified the categories of approved crypto asset activities. The organization explained its expectations around custody governance and operations.
- Technology Governance: The group introduced more clarifications and enhancements related to changes in the Crypto Asset’s underlying protocol that result in a coding change (fork). They also addressed associated governance and control expectations for license holders and crypto-asset exchanges.
- FSRA Anti-Money Laundering and Sanctions Rules and Guidance (AML): The AML Rulebook fully applies to all regulated crypto-asset holders and operator activities. This updated Guidance also provides more clarity about the use of new regulatory and surveillance technologies.
The Guidance does not provide comprehensive regulations about crypto assets. Interested entities should consult Financial Services and Market Regulations (FSMR) for a full list of rules and see “Guidance & Policies Manual of FSRA,” and “Guidance – Regulation of Crypto Asset Activities in ADGM.”
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