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Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) recently issued a guidance note on virtual asset regulation and supervision. Though it is not legally binding, this guidance shall definitely complement the existing comprehensive framework of ADGM when it comes to Virtual Assets (VA) licensing.

The guidance focus on 6 main principles, which are as follows:

  • A robust and transparent risk based regulatory framework
  • High standards for authorization
  • Preventing Money Laundering and other financial crimes
  • Risk sensitive supervision
  • Commitment to enforce on regulatory breaches
  • International cooperation

The above principles ensure to strike the balance between risk sensitivity, consumer protection, confidence in ADGM’s eco system and to attract more business.

The guidance discussed areas such as sandbox – types initiatives, risk appetite, need for comprehensive AML/CTF policies, taxation and related reporting obligations, risk ratings, governance control, investor protection.

The guidance also touched through the topic of enforcement mechanism by identifying, addressing and deterring regulatory breaches. Range of disciplinary actions including additional requirements, suspension of permissions, financial penalties, ban and injunctive relief were also mentioned.

Interestingly, the guidance also contemplates additional requirements for stable coins. The guidelines stipulate that ADGM will only permit those tokens where price stability is maintained by the issuer holding the same fiat currency it purports to be tokenising on a fully backed 1:1 basis. This therefore currently prevents the use within ADGM of other types of stable coins, such as algorithmic stable coins.

Algorithmic stable coins are decentralised and focus on improving market price stability through pre-programmed supply for matching asset demand.

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Disclaimer: This publication is for informational purposes only and does not provide any legal advice.