On 16 September 2018, the UAE Securities and Commodities Authority’s (SCA) chairman Sultan bin Saeed Al Mansouri announced that the SCA would regulate initial coin offerings (ICOs) and recognise them as securities, as well as introduce controls for trading digital tokens. The statement reads: “In light of the rapid development of the digital tokens market and the response thereto by the regulators in a number of countries worldwide towards regulating the initial coin offerings, the SCA Board of Directors has approved the SCA plan to regulate the ICOs and recognise them as securities”.
The announcement comes after a previous warning issued by the SCA in March for investors to be cautious about token-based fundraising schemes including ICOs, and that any investors involved are doing so at their own risk. The SCA had also previously called on digital token issuers to seek independent legal advice to ensure compliance with all applicable laws.
It is presently unclear as to whether the SCA intends to treat every single ICO as a security, including those that do not purport to give any ownership rights or that are not marketed as tokens that will rise in value and can be later sold to make a profit. Such an approach would contrast those of the Australian Securities and Investment Commission, which encourages issuers to assess the particular features of their ICOs to determine whether they constitute a financial product, and the US Securities and Exchange Commission which states that “ICOs that have specific features, based on specific facts, may be securities offerings“.
The SCA’s announcement adds it to the growing list of regulators that have chosen to regulate cryptocurrencies and ICOs instead of imposing outright bans on those activities. In 2015, the New York State Department of Financial Services commenced issuing BitLicences. In 2017, the Japanese Financial Services Agency imposed registration requirements on cryptocurrency exchanges. This year, the European Union’s Fifth Anti-Money Laundering Directive came into force which brings cryptocurrency exchange platforms and custodial providers within the scope of EU anti-money laundering rules.