Abu Dhabi’s financial regulator has announced plans to oversee fiat-referenced tokens (FRT), a specific type of stablecoin, in response to requests from stakeholders interested in their issuance. The body has opened a period for public comments on a proposed regulatory framework
The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) has indicated that FRT issuers will need to comply with operational restrictions and various requirements. The FSRA suggests that the market value of reserve assets must be at least equivalent to the nominal value of all FRT in circulation at the end of each business day. Additionally, FRT must be valued daily according to the mark-to-market methodology.
The regulator has also proposed that issuers of multiple FRT manage and maintain separate pools of reserve assets corresponding to each FRT, ensuring independent administration for each. The ADGM’s regulatory proposal indicates:
“The FSRA is addressing the interest of potential applicants interested in issuing FRT from the ADGM, and this consultation paper should be of particular relevance to them, other entities and organizations active in the stablecoin industry, as well as their professional advisors..”
The FSRA has set October 3, 2024, as the deadline to receive feedback on the proposal. Once opinions have been collected, the FSRA will assess whether modifications to the proposed regulatory framework for FRTs are necessary. Subsequently, the Board of Directors of the ADGM and the FSRA will proceed to enact the final regulatory framework.
FIAT-REFERENCED TOKENS DEFINITION
After evaluating definitions in other jurisdictions, the FSRA has proposed defining an FRT as a digital asset whose transfer and storage are electronically conducted through distributed ledger technology. The ADGM has also suggested that the value of an FRT be linked to a fixed amount of a single fiat currency, and that the holder have the right to redeem the FRT for that amount of fiat currency directly with the issuer upon request.
In addition to implementing a regulatory framework governing the issuance of FRTs, the FSRA is conducting a review of existing regulated activities to consider any relevant amendments where such activities may be conducted using FRTs. These proposed amendments will address the acceptance of tokens for services or investments, as well as the possibility of using the holding or transfer of tokens in the provision of payment services. The proposal will be detailed in a separate consultation paper.
ABU DHABI, AN ATTRACTIVE DESTINATION FOR CRYPTOCURRENCIES
The United Arab Emirates (UAE) is gaining recognition as a favorable destination for cryptocurrencies, with the potential to become the next global cryptocurrency hub thanks to investor-friendly regulations. In May, the cryptocurrency options trading platform QCP Capital obtained preliminary approval for regulated digital asset activities from the ADGM. This made QCP the first Singapore-based cryptocurrency market maker and broker to receive a preliminary license in the region.
In June, the UAE Central Bank approved the issuance of a new licensing and monitoring system for stablecoins with the aim of boosting digital transactions, fostering innovation, and advancing the region’s digital economy.
