The UAE’s financial regulator is taking the final steps to regulate the way that blockchain start-ups are raising money – initial coin offerings – and has warned of the many risks involved. The watchdog is proposing a fit-for-purpose regulatory framework that effectively recognizes digital tokens as securities.
Specifically, the UAE’s Securities and Commodities Authority (SCA) today approved a plan setting out its proposed framework to regulate crypto asset activities, including ICOs, exchanges and other intermediaries.
According to the SCA’s statement, the new regulations, which come into effect shortly, also address the full range of the issuance cycle associated with crypto fundraising, including: “..the type of issue (private/public), the entities that can make the issuing and the legislative requirements thereof, such as, inter alia, registration and fees, the Blockchain operators, the targeted entities by issue type, the minimum content of the prospectus (Whitepaper), liability thereof, and whether registration is or is not required by issue type.”
For ICO operators, the framework will entail proper regulation that cover key risks including anti-money-laundering and counter-terrorist financing, consumer protection, technology governance and safe custody.
Under the guidelines, startups wishing to execute an ICO must approach the SCA to see if it falls under the body’s regulation. Also, market intermediaries and secondary market operators dealing with ICOs must be approved by the regulator.
Most likely, ICO operators will have to publish a prospectus, just like a firm would for an IPO on the stock market. And if an ICO has the characteristics of a security, such as giving a person ownership of shares in a company, then the SCA will regulate it.
It further explains: “The presentation also discussed the licensing requirements for the platform of issuance, trading, clearing, listing, custody, settlement and payment to be defined as a central trading, custody, clearing, and depository platform, as well as the legal form to be taken by such platform. Furthermore, the presentation addressed the regulation of listing and trading of such securities, smart contracts used in the securities, the opening and registration of an e-Wallet on Blockchain, especially the KYC and money-laundering requirements.”
This year, start-ups have raised nearly $14 billion from ICOs, compared to less than $4 billion in 2017.