In response to increasing interest from stakeholders, Abu Dhabi‘s Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) is taking significant steps to regulate fiat-referenced tokens (FRTs), a category of stablecoins. This move is aimed at strengthening the legal framework surrounding digital assets and enhancing investor confidence in the region’s burgeoning crypto market.
The FSRA has proposed a comprehensive set of operational guidelines and requirements for FRT issuers. Key among these is the requirement that the market value of reserve assets must at least equal the par value of all outstanding FRTs at the close of each business day. Furthermore, FRTs must be valued on a mark-to-market basis daily to maintain transparency and accuracy in pricing.
Additionally, the FSRA suggests that issuers managing multiple FRTs maintain segregated pools of reserve assets for each token type, with each pool managed independently. This measure is intended to prevent cross-contamination of assets and ensure that each token is fully backed and redeemable as per its designated fiat currency.
Call for Public Feedback
The FSRA has opened the floor for public feedback on its draft proposal, setting an October 3, 2024, deadline for submissions. This consultative approach underscores the regulator’s commitment to inclusivity and transparency in formulating policies that impact a broad range of stakeholders, including potential FRT issuers, investors, and other participants in the stablecoin industry.
The proposed regulatory framework includes a clear definition of what constitutes an FRT. According to the FSRA, an FRT is a digital asset whose transfer and storage are facilitated electronically via distributed ledger technology. Additionally, the value of an FRT is pegged to a fixed amount of a single fiat currency, and holders have the right to redeem their tokens in exchange for the stipulated amount of fiat currency from the issuer upon demand.
In conjunction with the proposed regulations for FRTs, the FSRA is also reviewing its existing suite of regulated activities to identify necessary amendments. These amendments may pertain to the acceptance of tokens for services or investments and the use of tokens in delivering payment services. A separate consultation paper will be issued to address these aspects, ensuring a holistic update to the regulatory landscape.
UAE as a Crypto-Friendly Hub
The United Arab Emirates is gaining recognition as a crypto-friendly jurisdiction, attracting investors and enthusiasts worldwide. Recent regulatory advancements, including the approval of new stablecoin licensing and monitoring systems by the UAE’s Central Bank, are aimed at bolstering digital transactions and propelling the region’s digital economy forward. In May, the crypto options trading platform QCP Capital received in-principle approval for regulated digital asset activities from the ADGM, becoming the first Singapore-based crypto market maker and broker to secure such a license in the region.
Abu Dhabi’s proactive approach in regulating fiat-referenced tokens positions it as a leader in the global effort to integrate digital assets within a formal regulatory framework. By establishing clear rules and encouraging public participation in the regulatory process, Abu Dhabi aims not only to safeguard investors but also to foster innovation and growth in the crypto sector.
