Abu Dhabi Introduces Regulations for Fiat-Referenced Tokens

Key takeaways:

• The financial authority of Abu Dhabi intends to oversee stablecoins, known as fiat-referenced tokens (FRTs), in response to requests from interested parties for their issuance.
• The regulator suggests that issuers of multiple FRTs run and maintain distinct reserve asset pools for each FRT, with independent management of each pool.

The financial authority of Abu Dhabi intends to oversee stablecoins, known as fiat-referenced tokens (FRTs), in response to requests from interested parties for their issuance. The public is being asked to provide input on a proposed regulatory framework by the regulator. 

The Abu Dhabi Global Market’s (ADGM) Financial Services Regulatory Authority (FSRA) said that operating limitations and specifications will bind FRT issuers. 

The market value of reserve assets should, according to the FSRA’s proposal, be at least equal to the par value of all outstanding FRTs that are in circulation at the conclusion of each business day. Additionally, FRTs must have daily mark-to-market valuations.

Further, the regulator suggests that issuers of multiple FRTs run and maintain distinct reserve asset pools for each FRT, with independent management of each pool. According to the ADGM’s proposed regulation:

“The FSRA is responding to interest from potential applicants seeking to issue FRTs from ADGM, and this Consultation Paper should be of particular interest to them, other individuals and organizations active in the stablecoin industry, and their respective professional advisers.”

The FSRA has established October 3, 2024, as the deadline for comments on the plan. The FSRA will evaluate whether changes to the proposed regulatory framework for FRTs are necessary after receiving feedback. The regulatory framework will subsequently be enacted in its final form by the FSRA and the board of the ADGM.

The FSRA stated that it intends to define an FRT as a digital asset whose transfer and storage are accomplished electronically through the use of distributed ledger technology after considering definitions from other countries.

The ADGM further suggested that the value of FRT be pegged to a certain quantity of a single fiat currency and that, upon demand, the holder could redeem the FRT for the specified amount of that fiat currency from its issuer.

The FSRA is reviewing the current suite of regulated activities to consider any pertinent revisions where such activities might be done using FRTs, in addition to establishing a regulatory framework controlling the issuing of FRTs.

These proposed revisions will cover the acceptance of tokens for investments or services and situations in which token holding or transfer may be utilized to provide payment services. A separate consultation paper containing the proposal will be released.

Due to investor-friendly rules, the United Arab Emirates (UAE) is increasingly seen as a crypto-friendly destination and has the potential to become the next global hub for crypto. 

The ADGM granted the crypto options trading platform QCP Capital in-principle clearance to engage in regulated digital asset activities in May. QCP, headquartered in Singapore, is now the first crypto market maker and broker in the area to obtain a provisional license.

To promote innovation, expand the region’s digital economy, and increase digital transactions, the Central Bank of the UAE authorized the issuance of a new stablecoin license and monitoring system in June.