What has happened?
The markets regulator of Abu Dhabi is thinking of developing a regulatory framework for virtual currency exchanges and intermediaries.
What does this mean?
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has announced that it "is reviewing and considering the development of a robust, risk-appropriate regulatory framework to regulate and supervise activities of virtual currency exchanges and intermediaries".
The FSRA said that the development follows the guidance that it issued in October 2017 on its regulatory approach to initial coin offerings (ICOs) and virtual currencies, in which it had also cautioned investors against the risks associated with cryptocurrencies.
The guidance also recognised that "ICO tokens and virtual currencies do not always fit neatly into existing regulatory classifications".
The authority now notes that virtual currencies are increasingly popular as a means of exchange for goods and services, even though they are not legal tender.
Of particular concern is the fact that virtual currencies are vulnerable to being used in money laundering and terrorist financing because of their anonymous and cross-border nature as well as to other types of financial crimes and cyberattacks.
Until a framework has been put in place, the FSRA said that market participants using ICOs and virtual currencies should contact it to discuss the appropriate treatment within the regulatory regime.
The authority indicated that it intends to consult industry participants and relevant professional bodies when development a potential legal framework.
Andrew Tarbuck, Corporate Partner at Hogan Lovells (Middle East), said:
"It is encouraging to see that the FSRA is maintaining a consistent dialogue with the UAE markets on FinTech matters after its detailed guidance on ICOs back in October 2017. In the same spirit as the sentiments voiced by the respective chairmen of the Commodity Futures Trading Commission and the Securities and Exchange Commission in the U.S. Senate hearing on 6 February 2018, the FSRA is inclusive in its approach to the regulation of virtual currencies, but highlights the risks, particularly relating to anti-money laundering and terrorist financing. Importantly, the UAE retains an open mind as to the cryptocurrency global discussion."
The move comes hot on the heels after the United Arab Emirates' regulator, the Securities and Commodities Authority, issued a warning cautioning about the risks of ICOs.
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