Abu Dhabi's Financial Services Regulatory Authority (FSRA), have released guidelines on ICOs and digital currencies for the first time. Their stance on ICOs is that they are similar to securities and are risky, while digital currencies are seen more like commodities.
Many nations are starting to crack down on ICOs, with differing levels of regulations. Some, like China, have totally banned them, while others are being more friendly.
Even branding ICOs, or categorising them for that matter, has seen nations differ. The US and its SEC have said that ICOs exhibit signs of being securities, such as giving a person ownership of shares in a company.
The FSRA has noted the similarities to securities and has said that if it settles on such a categorisation, it will regulate it similar to a company issuing a new stock.
"The ICO market is incredibly diverse in terms of quality - there are some ICOs which constitute high risk," Christopher Kiew-Smith, head of fintech strategy at the FSRA, said. "The disclosures are not there, there are no financial statements, so those are extremely high risk for those seeking returns.
"But we are aware of and are working with some firms that want to use ICO tech to fund in a transparent fashion. We have asked firms to bring them within the regulatory framework."
This means, much like the SEC’s regulations, an ICO must approach the FSRA to see if it falls under the body’s regulation. Companies will also have to publish a prospectus, just like a firm would for an initial public offering (IPO) on the stock market.
The financial watchdog, the FSRA, also said it would not consider digital currencies legal tender, rather class them as commodities, such as precious metals or fuels. Therefore, they remain unregulated.
It is a big score for digital currencies that are already established, and it seems to hint at the fact that Abu Dhabi is trying to strike a balance. They want to protect their citizens from the dangers of ICOs, but they are open to letting the digital currency market flourish unhindered.
Neighboring emirate Dubai, for example, recently issued a warning about ICOs and said that it does not regulate them. Dubai has also issued its own state digital coin.
Could still regulate in the future
The FSRA said that it is currently talking to the Japanese Financial Services Agency about how it has gone about regulating Bitcoin. Abu Dhabi's authorities said it is not ruling out bringing virtual currencies under its regulatory remit.
"For us, we do see a lot of challenges in regulating something which was designed not to be regulated. We recently established a fintech reach with the Japanese FSA, and through such cooperation we hope to see how they regulate these and if there are risks they see," Wai Lum Qwok, executive director of capital markets at the FSRA, said.