The past decade has seen the rise of a new age of finance at a rather exponential rate, requiring the financial industry to tackle new challenges while embracing new opportunities in an expanding digital world. The evolution of the virtual asset (VA) landscape within a short period has led to it being recognised as a vehicle for the transformation of the financial services sector. With the popularity and usage of Blockchain, VAs, non-fungible tokens (NFTs), stablecoins and other digital assets and activities growing among the broader community, the demand for greater regulatory oversight to ensure the risks posed by these digital asset activities are suitably mitigated have also increased.
By introducing the first-of-its-kind comprehensive and bespoke VA regulatory framework, Abu Dhabi Global Market (ADGM), the international financial centre located in the capital of the UAE, has been playing a pioneering role in developing the VA space. ADGM’s regulatory agency, The Financial Services Regulatory Authority (FSRA), realised the crucial need for proper governance, supervision and transparency over VA activities in 2018. With its progressive and consultative approach, it has been able to build a holistic framework that addresses some of the major regulatory concerns for VA players, investors and associated stakeholders.
ADGM continues to be the most established regulated jurisdiction for VAs across the UAE, bringing both a unique and comprehensive proposition for regional and global players to operate in this strategically located country of the MENA region. We have been continuously adopting and establishing international best practices within the Digital Asset space, upgrading our VA and Digital Securities frameworks, to keep pace with the new developments across this space.
Recently, ADGM’s FSRA published its Guiding Principles on its regulatory approach to Virtual Asset Regulation and Supervision, outlining its expectations for the asset class and service providers in the sector. These Guiding Principles align with key pillars of FSRA’s holistic approach to financial services regulation, elaborating on its robust and transparent regulatory framework including high standards of authorisation, anti-money laundering (AML) regime, financial crime prevention, risk-sensitive supervision, enforcement tools for regulatory breaches, and international cooperation. It also facilitates greater collaboration and cohesion between the regulatory standards of the FSRA and other authorities across the UAE and the wider international markets.
Separately to this, the FSRA has also been busy ensuring its innovative and progressive leadership in the financial markets space continues. The first part of this was the successful consultation on, and subsequent publication in late September of, significant amendments to advance the ADGM capital markets framework, covering VA, NFTs, spot commodities and emissions allowances. The second aspect has centred around the publication in April of a discussion paper on DeFi, focussing on exploring with industry practitioners and other stakeholders the potential opportunities arising from DeFi activities, the associated risks and what a future regulatory framework may resemble.
Given the increased technological complexities and risks within VA markets, the FSRA has continued to focus on its responsibility to promote the adoption of policies and practices that aim to create stable and safe financial Ecosystems while being responsive to change. FSRA’s robust but transparent regulatory requirements across Anti-Money Laundering & Combatting the Financing of Terrorism (AML/CFT) obligations, investor protection, safe custody of customer assets, technology governance requirements, along with a full suite of exchange type obligations address a full range of risks associated with VA activities, catering to global participants seeking a trusted and well-regulated environment.
Additionally, as a sign of confidence in our framework, a number of the regulated firms operating within ADGM’s Ecosystem have received the backing of sovereign wealth funds which stands as a testament to the further strengthening of the overall framework. Abu Dhabi is home to some of the world’s largest sovereign wealth funds (SWFs) such as Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company, Abu Dhabi Development Holding Company (ADQ), and Emirates Investment Authority, making it a capital hub.
ADGM has become the destination of choice for many start-ups, investors, and businesses looking to enter the VA market in a properly regulated environment. By learning from the firms in ADGM, and others seeking entry into its regulated VA Ecosystem, ADGM and the FSRA strive to continuously stay ahead of the game. Through the commitment and vital role played by all the relevant stakeholders across ADGM’s vibrant Ecosystem, we aim to unleash the true power of all Digital Assets including virtual assets, regionally and globally