As digital assets such as Bitcoin and Ripple that use blockchain technologies grow exponentially, companies are looking for jurisdictions with clear and progressive regulations to base their operations in.
Many financial regulators around the world are as yet undecided on how to treat cryptoassets. Facebook, the world’s largest social media company, has said it plans to launch a digital currency, Libra, in 2020. The currency will be based in Switzerland in part due to a lack of regulatory clarity over the treatment of digital assets in the United States.
Given the potential of cryptoassets to promote financial innovation and financial inclusion, “we saw it as untenable not to regulate them,” said Wai Lum Kwok, executive director – capital markets at the FRSA.
“Our framework is designed to address a wider range of risks associated with crypto asset activities, including anti-money laundering (AML) and counter financing of terrorism (CFT) risks, custody risks, technology, governance and exchange operations,” said Kwok.
“Finding the toughest regulator globally was the most important thing for us,” said Christopher Flinos, co-founder at Havyn, an over-the-counter (OTC) trading platform targeting high volume clients, which has received an in-principle approval (IPA) from the FSRA.
Along with the government-level focus on introducing blockchain technologies across the UAE, there’s potential for a broader economic impact arising from formal regulation of cryptoassets, such as in the remittance and real estate sectors, believes Monark Modi, the CEO of Bitex UAE, a Dubai-licensed crypto exchange.
Some participants in the UAE real estate market have been considering whether they could begin accepting crypto currencies as a means of payment properties, and regulations could give more clarity to the sector, he said.
The ADGM could also become a hub for international and local companies to carry out international coin offerings (ICOs), something that could help create deal flow and liquidity for ADGM-licensed exchanges while creating capital raising opportunities for local companies, said Modi.
And an influx of crypto firms will also help with ADGM’s mission to grow as a hub for FinTech and provide opportunities for innovation in the broader UAE financial sector. Beyond exchanges, brokers and custodians, they’re also seeing interest from the wider ecosystem of service providers, advisors, and other firms, said Simon O’Brien of the FSRA.
The focus for many of the companies seeking an ADGM licence is to build trading platforms and custody solutions that can utilised by institutional investors. While retail investors are typically willing to invest via unregulated or lightly regulated platforms, there’s a much higher bar for institutional investors, which have rigorous guidelines and on-boarding processes.
For Smith, whose DEX platform will target both retail and institutional investors, the goal is to satisfy both the law and the internal compliance requirements that large investors have. “When you have exchanges that institutional investors can interface with, if that financial institution is open to trading in digital assets, it gives them the option,” he said.
“As [the ADGM] continues to have success, that’s a discussion we won’t need to have as often because the ADGM will become a household name when it comes to digital currency regulation,” he said.