Abu Dhabi Global Market (ADGM) has announced that its financial regulator, the Financial Services Regulatory Authority (FSRA), has published ‘Guiding Principles’ on its approach to virtual asset regulation and supervision as a way to outline its expectations for the asset class and service providers in the sector.
The principles state the FSRA’s risk appetite and priorities for the sector, with each principle covering one of the key pillars of ADGM’s holistic approach, which includes a robust and transparent regulatory framework; high standards of authorisation; preventing money laundering and other financial crimes; risk-sensitive supervision; enforcement powers for regulatory breaches; and its commitment to international cooperation.
These guidelines will be of particular relevance to potential applicants to ADGM and other regulators with an interest in this area.
Under the guidelines, the FSRA’s risk appetite for VA (virtual asset) activities is such that it will only admit operators to its jurisdiction who at the outset can unequivocally meet the transparent, high standards outlined in its framework. This will maintain the best-in-class reputation of the ADGM ecosystem and instill market confidence to promote growth and investment.
In addition, the document discusses stablecoins. The guidelines stipulate that ADGM will only permit those tokens where price stability is maintained by the issuer holding the same fiat currency it purports to be tokenising on a fully backed 1:1 basis. This therefore currently prevents the use within ADGM of other types of stablecoins, such as algorithmic stablecoins.
Algorithmic stablecoins are decentralised and focus on improving market price stability through pre-programmed supply for matching asset demand. Algorithmic stablecoins employ predefined stabilisation measures encoded in the different smart contracts on Ethereum.
Earlier this year, LUNA – a popular algorithmic stablecoins, reportedly lost more than 60 percent of its value in what some call a ponzi scheme.
Emmanuel Givanakis, CEO, FSRA, said, “These guiding principles will provide greater clarity to investors, other regulators, industry and the wider public of our approach to regulation in this area and key expectations we have set on current virtual asset service providers in ADGM and potential applicants. They also outline the tools we have at our disposal to mitigate the material risks that are born from these activities and the regulatory powers to identify and act upon any misconduct. Consistent with the FSRA’s broader strategy to align with international best practices, these principles make clear the high standards of our framework at a time of increased volatility and regulatory focus.”
