The United Arab Emirates (U.A.E) has announced plans of permitting Initial Coin Offerings (ICOs) as a method of raising capital for domestic companies. The country is looking to put up a legislative framework to be introduced in 2019. The new rules will open an avenue for local corporations to raise capital through crypto token sales. This will be an alternative to the traditional Initial Public Offers (IPOs) according to a news report published on Monday by Reuters.
Dampened IPO activity in U.A.E
While announcing the move, head of U.A.E’s securities watchdog Obaid Saif Al Zaabi alluded to a dampened environment for IPOs in the country. He indicated that a double-whammy of low oil prices and lackluster equities markets in recent years have decreased IPO performance in U.A.E as well as in the neighboring nations. One of the ways of dealing with this situation is by boosting the number of IPOs by allowing family owners to sell up to 100 percent of firms under their control. This will be done by drawing up a new law which measure is currently awaiting approval from the Prime Minister’s office.
The nation’s regulator, in conjunction with advisers from outside the country, stock markets in Abu Dhabi and Dubai to prepare trading platforms for the new digital assets. The laws are intended to provide a legal basis for ICOs which are currently unavailable. Once passed, the nation will become among the first countries in the world to establish a regulatory framework for the blockchain funding method.
Other Jurisprudential approaches to ICOs
Nations have moved in to legislate frameworks for cryptocurrency and blockchain technology so as to avoid missing out. Malta, for instance recently passed several bills to provide a legal basis for ICOs. It hopes to become a ‘Blockchain island’. Its Prime Minister recently addressed the United Nations on the subject. He said that cryptocurrency is the inevitable future of money to the world. Another case in point is Bermuda who are hoping to attract more businesses to the island by providing enabling laws that would allow ICOs under certain conditions. Bermuda has also put in place a standing task force geared towards boosting cryptocurrency commerce.
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The head of UAE’s top financial regulator has called for stronger international regulations to prevent financial crimes in the cryptocurrency trading industry.
Stringent regulation is necessary to prevent wrongdoings
Richard Teng, the chief executive of the Financial Services Regulatory Authority (FSRA) at the Abu Dhabi Global Market (ADGM) explained his stance by stating, “There are grave risks of financial wrongdoings if this space is not properly regulated. Every single time a crypto coin gets lost or stolen, the confidence of investors in this asset class is severely affected.”
Mr. Teng further elaborated on FSRA’s international collaborations, “Our management is positive that our broad regulatory regime will reduce these financial risks and bring enhanced confidence into this asset class. We have also shared our regulatory arrangements with several other international regulators like the UK Treasury, SEC [US Securities and Exchange Commission] and regulators of Japan, Hong Kong and Singapore.”
ADGM’s efforts to regulate ICOs
Last year, ADGM published a guideline on initial coin offerings (ICOs) and digital currencies following massive criticism and enormous volatility in the trading prices of several popular digital currencies like the Bitcoin. UAE’s ADGM became the first financial center in the GCC region to have published a specific guideline on virtual currencies. The document explains various aspects of cryptocurrencies and ICOs, like how funds can be generated through this increasingly popular crowdfunding tool in the crypto industry. It also declares that cryptocurrencies should be treated as “commodities” and crypto tokens offered for sale during ICOs should be treated as “special investments” under the ADGM’s regulatory scheme.
Currently, ADGM is also the member of R3 consortium which comprises of over 200 members and partners across multiple industries all joined together to apply distributed ledger technologies to the global financial services industry.
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