By The United Arab Emirates (UAE’s) financial regulator, the Securities and Commodities Authority (SCA), has announced plans to introduce new rules that would permit initial coin offerings (ICOs) as a fundraising method for domestic companies. According to the head of the UAE’s SCA, Obaid Saif al-Zaabi, “the board of the Emirates Securities & Commodities Authority has approved considering ICOs as securities. As per our plan we should have regulations on the ground in the first half of 2019”.
SCA to Propose a Regulatory Framework for the Crypto Funding Industry
The SCA is proposing a regulatory framework designed specifically for the crypto industry that will recognize cryptocurrencies as securities and will regulate the way that blockchain start-ups are raising money using ICOs. The SCA has approved a plan which sets out its proposed framework to regulate crypto asset activities including ICOs, exchanges and other intermediaries. These new rules, which are presently being drawn up with the assistance of advisers from outside of the UAE, will allow firms to raise capital via ICOs as an alternative to traditional fundraising methods such as IPOs. The SCA is also working with stock markets in Abu Dhabi and Dubai to prepare trading platforms for new digital assets.
These new regulations are envisaged to address the full range of issuing activities including the type of issue and the legislative requirements thereof. According to the SCA, these regulations will, amongst other things, specify the minimum content of the prospectus and its liability. Other aspects covered by the new regulatory framework include the licensing requirements for the platform of issuance, trading, clearing, listing, custody, settlement and payment. These regulations will also include the framework for the legal form such platforms are to take as well as the regulations regarding the listing and trading of securities.
Firms wishing to launch an ICO will first have to approach the SCA to see if the ICO falls under the SCA’s regulation. Other market intermediaries and secondary market operators dealing with ICOs will also have to be approved by the SCA. ICO operators will have to publish a prospectus and if the ICO has the characteristics of a security, the SCA will then regulate it.
The proposed regulations will cover key risks associated with anti-money-laundering and counter-terrorist financing as well as consumer protection, technology governance and safe custody. All of these risks, which the proposed regulation is tasked to cover, currently contribute to the high market volatility in the industry.
UAE’s Regulatory Framework as Some of the First in the World
When the new ICO regulations come into law, the UAE will be one of the first countries in the world to have brought in a regulatory framework for the blockchain funding method, with Malta and Bermuda not far behind.
The effect of low oil prices and uninspiring equity markets in recent years has adversely affected new company start-ups in the UAE and in neighboring nations. If current plans to consider allowing family members to sell up to 100% of firms under their control are realized, this could further boost ICO activities in the region.
Earlier this year Malta passed several bills to provide a legal basis for ICOs, cryptocurrency and blockchain technology. Malta’s prime minister, when addressing the UN, stated that cryptocurrency was the “inevitable future of money”. Similarly, Bermuda has created legislation allowing for ICOs in certain circumstances and is undoubtedly hoping to attract more businesses to the island.
Do you believe blockchain funding methods need to be regulated by legislation? Will the UAE see an increase in ICO activity in 2019? Give us your thoughts in the comments below.
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