Abu Dhabi: ICO Tokens Are Specified Investments, Cryptocurrencies are Commodities

“ICOs have transformed the capital formation landscape and global regulatory frameworks are evolving to adapt to such innovation."

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) today published its approach to initial coin offerings (ICOs) and cryptocurrencies under the Financial Services and Markets Regulations (FSMR).

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The FSRA says that it is acutely aware that ICOs do not always fit neatly into existing regulatory classifications, and that a one size fits all approach to tokens is inappropriate. The FSRA therefore encourages those using ICOs to approach it as early as possible to determine the appropriate treatment within the regulatory regime.

Richard Teng

Mr Richard Teng, Chief Executive Director, FSRA of ADGM, said: “ICOs have transformed the capital formation landscape and global regulatory frameworks are evolving to adapt to such innovation.

Participants exploring the issuance of ICOs that offer real value to the market and wish to operate within our regulatory framework are encouraged to engage us early to gain insights into the applicable regulatory regime”.

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The FSRA says that those ICOs comprising tokens which exhibit the characteristics of specified investments will be treated as such within the FSRA’s regulatory framework. The regulator also sets out that cryptocurrencies are treated as commodities in its jurisdiction.

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The regulator explains that ICOs represent a novel and potentially more cost-effective way of raising funds for companies and projects. However, the form and quality of transparency varies greatly from ICO to ICO.

It warns that while some market players wish to use ICOs to raise funds in a transparent and robust fashion, others provide very limited or no information beyond a code script, and in these latter cases the risk of fraud is extremely high. Best practice standards, particularly in the unregulated space, are therefore strongly encouraged.

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