Abu Dhabi Regulator Proposes Regulatory Framework for Crypto Asset Markets

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) on Monday published a regulatory consultation paper on cryptocurrencies. The UAE-based financial body claims its proposed regulation, which it has termed the ‘Spot Crypto Asset Framework’, will address the new risks posed by cryptocurrency trading.

The FSRA’s proposed regulation will attempt to address a range of issues that it claims have arisen solely over the past ten years with the growth of the cryptocurrency industry. In its consultation paper, the regulatory body claims that new regulation will also aim to untangle cryptocurrencies from current regulation that was designed with traditional financial instruments in mind.

To support its proposed regulation, the FSRA has identified several key risks that it claims need to be addressed in the cryptocurrency industry. It states that regulation is needed to counter the potential for money laundering or terrorist financing in the cryptocurrency market. Moreover, it notes that there is a need for increased consumer protection and governance of new technologies such as crypto-wallets, private keys and risk management systems.

If the regulation is implemented a number of key actors in the cryptocurrency industry will be affected. Individuals trading cryptocurrencies as agents, acting as custodians, or advisors will all have their activities regulated.

Crypto asset exchanges will likely be the most heavily impacted by the new rules. Under the proposed regulation they will have to pay the FRSA a $125 000 authorization fee and a $60 000 supervision fee. They will also be subject to pay a monthly trading levy equal to 0.0015% of daily trading value.

Unlike most governments, the UAE has been more supportive of the nascent cryptocurrency industry. The ADGM publicly supported the development of cryptocurrencies and initial coin offerings in 2017. Another UAE-based financial institution, the Abu Dhabi Exchange, even launched a blockchain-based voting system in late 2016.

While cryptocurrency traders and exchanges may feel perturbed by the financial costs, the FRSA’s new regulation will also act as a welcome seal of approval. In an industry that continues to be tarnished by allegations of criminality and market bubbles, governmental regulation offers a level of institutional approval that many in the industry are searching for.