Articles

Abu Dhabi Global Markets (ADGM) On The New Crypto Asset Regulation

12 June 2019

The ADGM has emerged as a leading international financial center in the Middle East with the implementation of a regulatory instrument on crypto currency; being the smallest country in the Arab world, taking a step towards developing a safer market for digital currencies. As this kind of virtual currency is gaining popularity over the world, a regulatory framework was introduced in June 25th, 2018 on the management of the crypto assets.

ADGM defines crypto assets as non-fiat (currencies whose values are not backed by the issuing government) crypto currencies (e.g., Bitcoin, Ether). Regulated Activity of Operating a Crypto Asset Business ‘’OCAB’’ Exchanges and intermediaries conducting Crypto Asset activities in ADGM are required to apply and hold an OCAB license under the Financial Services and Markets Regulations 2015 (‘’FSMR’’).

Crypto assets are treated as commodities and, therefore, not deemed as Specified Investments under the FSMR. Pursuant to the OCAB Framework, however, market intermediaries (e.g., broker dealers, custodians, asset managers) dealing in or managing Crypto Assets, and Crypto Asset Exchanges, need to be licensed or approved by Financial Services Regulatory Authority ‘’FSRA’’ as OCAB Holders. Only activities in Accepted Crypto Assets will be permitted.

Who can deal with crypto assets?

Any individual or entity can deal with crypto currency in the ADGM but should be authorised as an OCAB Holder. An applicant must satisfy the FSRA that all applicable requirements of FSMR and the relevant FSRA Rulebooks have been, and will continue to be, complied with.

Applying to become an OCAB Holder

Applicants seeking to become an OCAB Holder must be prepared to engage heavily with the FSRA throughout the application process. The Application process is broadly broken down into five stages, as follows:

a) Due Diligence & Discussions with FSRA team(s);
b) Submission of Formal Application;
c) Granting of In Principle Approval;
d) Granting of Final Approval; and
e) ‘Operational Launch’ Testing Due diligence and Discussions with FSRA team(s)
Activities covered by the OCAB Permit

OCAB permits undertaking one or more crypto asset activities, which include: buying, selling or exercising any right in accepted crypto assets (whether as principal or agent), managing accepted crypto assets belonging to another person, making arrangements with a view to another person (whether as principal or agent) buying, selling or providing custody of accepted crypto assets, marketing of accepted crypto assets, advising on the merits of buying or selling of accepted crypto assets or any rights conferred as such by buying or selling and operating a crypto asset exchange or operating as a crypto asset custodian. Only accepted authorised activities will be permitted.

Crypto Asset Custodian

The FSRA has taken a similar approach to that of other custodian activities permitted within the ADGM. To afford the same protection, the FSRA offers other similar products within the FSMR (including relevant rule books), for example, it has widened the scope of definitions of “Providing Custody”, “Client Assets”, “Client Investments” and “Investment Business” to include crypto assets and OCAB.

Fees

Initial authorisation fee is $20,000 USD plus an additional $15,000 USD as general supervision fee. If the Applicant is seeking to operate as a Crypto Asset Exchange, then the application fees would be $1,25,000 USD and supervision fees at $60,000 USD. A Crypto Asset Exchange must pay to the FSRA a trading levy on a sliding scale basis payable monthly in USD. Unless otherwise determined by a Crypto Asset Exchange, the FSRA expects that the calculation of average daily value should occur at 12am Abu Dhabi time (+4hr GMT).

Conclusion

The regulation tries to find the balance making the laws governing crypto currency transparent, relaxed and accountably safe. With ADGM pioneering in a framework for crypto currency, this venture is guaranteed to set an example for other Middle Eastern counties to follow by their guidelines. Though the law is in the early stages, having passed the regulatory framework, this regulation is bound to fill in existing gaps and sophisticated market for the existing individuals and entities planning on dealing with this as well as secure a future for investment in the region using crypto assets.