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Abu Dhabi Global Market sets guidance on initial coin offerings, virtual currencies

ADGM says ICOs are ‘a novel and potentially more cost-effective way of raising funds’

Gulf News

Dubai: Abu Dhabi Global Market’s (ADGM) Financial Services Regulatory Authority announced on Monday guidance on initial coin offerings (ICOs) and virtual currencies, offering regulatory clarifications on what has become a growing way to raise funds.

In a statement, Abu Dhabi Global Market described ICOs as a “novel and potentially more cost-effective way of raising funds for companies and projects”.

Much like an Initial Public Offering in equity markets, ICOs are a means to raise funds, but through the issuance of a cryptocurrency (rather than a stock). ICOs have generally been unregulated in many markets, with cryptocurrencies still viewed as being risky investments.

The Authority said while ICOs represent a new way of raising funds, the transparency of ICOs varies greatly from issuance to issuance, and a ‘one size fits all’ approach to ICOs would not be appropriate.

It also “advises caution to those seeking outsized investment returns due to their (virtual currencies’) price volatility”.

“ICOs have transformed the capital formation landscape, and global regulatory frameworks are evolving to adapt to such innovation,” said Richard Teng, chief executive director of the regulatory authority at ADGM.

He added that those exploring the issuance of ICOs are encouraged to engage with ADGM early to know more about the applicable regulatory regime.

ADGM said the regulatory authority will regularly review and update its financial services rules to maintain an effective market.

In its guidance, ADGM said the use of virtual tokens to raise funding and facilitate economic transactions has been on the rise in recent years. This has resulted in increased attention from financial services regulators.

The guidance added that whether an ICO is to be regulated by the Authority will be assessed on a case-by-case basis.

Sally Sfeir-Tait, partner at Clyde & Co, the international law firm, said it was a positive move to have ADGM’s financial services regulator explain its position in detail on ICOs.

“Now that regulators globally are publicly clarifying the regulatory position, I expect that the market will mature. There is certainly a benefit to raising funds through ICOs from a start-up’s perspective. The route to market is much quicker. Instead of negotiating with [Venture Capitals] and other investors, a company can directly raise money from its customers,” she told Gulf News via email.

Sfeir-Tait who has been advising in the ICO space for some time said she has seen a shift in interest towards ICOs from retail investors to corporate investors.

ICOs have recently been the subject of much discussion after China last month banned ICOs and all cryptocurrency trading despite a surge in public interest. South Korea followed suit in banning domestic ICOs and margin trading in cryptocurrencies.

Countries including the US, Canada, Singapore, and Hong Kong have also issued warnings about ICOs this year, though none have gone as far as banning them, Bloomberg reported.

Concerns around ICOs stem from the lack of oversight around them that can draw criminals.

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