Abu Dhabi Regulator Releases New Guidelines for ICOs

The government of Abu Dhabi has today issued its guidance for ICOs, aimed at informing planning or participating in token offers.

Initial coin offerings have been big news so far in 2017, raising over $2 billion in capital for companies over the course of the year so far.

Emerging out of developments in blockchain technology, the trend for ICOs is showing no sign of abating, despite warnings from regulators about the legalities surrounding unregulated token issues.

Now, regulators around the world are pushing to issue clarifications on ICOs, and when if ever they should be regulated under existing securities rules.

The Abu Dhabi Global Market’s Financial Services Regulatory Authority (FSRA) guidance stipulates that ICOs are subject to existing know-your-customer and anti-money laundering regulations, while setting out dividing lines between those ICOs considered “assets” and those considered “securities.”

The guidelines attempt to create rules for ICO promoters to follow, but ultimately the regulator will continue to judge the legal position of ICOs on a case-by-case basis.

The nine-page guidance document includes examples of instances that would be considered securities or otherwise, with the distinction crucial in determining how an ICO should be regulated in practice.

The agency went further, encouraging any companies planning an ICO to get in touch with the regulator directly in advance of executing their plans. The FSRA’s chief executive, Richard Teng, said that the regulator welcomed ICOs “that offer real value,” and encouraged dialogue ahead of any launch.

“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.”

The approach taken by the FSRA is similar to the stance adopted in the United States, where the Securities and Exchange Commission has offered a similar “case-by-case” model for judging the legal position of initial coin offerings, leading to the establishment of the first regulated ICO exchange under SEC regulation.

This is in contrast to the position adopted in China, where ICOs have been subject to an outright ban, over concerns about fraud and investment risk.