The proposed changes by the ADGM’s Financial Services Regulatory Authority (FSRA) covering stablecoins and fiat-referenced tokens (FRT) – digital currencies pegged to a stable currency such as the dollar or the euro – will have significant impact on a host of digital currency users, including service providers and crypto-asset exchanges, operating in and from the ADGM.
The proposals expand the scope of the ADGM’s existing regulated activities in this space to include custody, payment services, and intermediation involving FRTs, and also introduce new conduct and prudential requirements, fee structures, and anti-money laundering obligations. If the changes are introduced as presented in the consultation, firms will be required to align with the regulator’s standards to either enter or continue operating FRT in the ADGM.
The FSRA said the measures were designed to give stronger consumer protection and clearer lines of regulation, while aligning with international standards for digital assets.
Lana Akkad, an expert in finance regulation at Pinsent Masons in the UAE, said: “The FSRA’s proposed framework marks an interesting shift in how fiat-referenced tokens are treated within the ADGM. By expanding the scope of regulated activities to include custody, payment services, and intermediation, the FSRA is acknowledging the growing commercial utility of FRTs and the need for robust oversight.
Marie Chowdhry, a financial regulation expert at Pinsent Masons in the Middle East said the proposals would expand on the ADGM’s regulatory framework for FRTs introduced at the end of 2024.
She added: “Those regulations represented the first step towards introducing a legislative framework governing the use of FRTs in the ADGM. However, when those rules were introduced, it was widely acknowledged that more changes would be required to bring them up-to-speed and in line with international standards.”
“The proposals outlined in this consultation paper seek to achieve these objectives, and it appears that the they have been designed to minimise any disruption to existing custodians, broker-dealers and MTFs authorised to carry on activities in relation to virtual assets – particularly those involved in safekeeping, holding and trading FRTs in conjunction with their virtual asset-related activities,” she said.
The FSRA revealed the planned new amendments to its regulatory framework in September. Its consultation closes on 7 October.