Abu Dhabi’s Financial Services Regulatory Authority (FSRA) has announced plans to supervise fiat-referenced tokens (FRTs), a category of stablecoins, in response to growing interest from stakeholders. This move reflects the FSRA’s commitment to developing a comprehensive regulatory framework to govern the issuance and management of these digital assets. The regulator has opened a public consultation to gather feedback on its proposed regulations, with comments due by October 3, 2024.
The FSRA’s proposed framework for FRTs includes several key operational restrictions and requirements aimed at ensuring market stability and protecting investors. Issuers of FRTs will be required to maintain reserve assets equal to the par value of all outstanding tokens as of the end of each business day. Furthermore, the value of these reserves must be marked-to-market daily, providing real-time transparency into the backing of the FRTs.
For issuers managing multiple FRTs, the FSRA proposes that they operate and maintain separate pools of reserve assets for each token. This segregation is designed to ensure that each FRT’s reserves are managed independently, enhancing financial security and accountability.
The FSRA's proposal reflects the regulator's proactive stance in responding to interest from potential FRT issuers and other stakeholders in the stablecoin industry. The consultation paper aims to address concerns and gather insights from individuals, organizations, and professional advisers involved in the space.
According to the FSRA’s proposal, a fiat-referenced token is defined as a digital asset that is electronically transferred and stored using distributed ledger technology. An FRT’s value will be pegged to a fixed amount of a single fiat currency, and holders will have the right to redeem the token for the corresponding amount of fiat currency from its issuer upon request.
This definition aligns with international standards and practices observed in other jurisdictions, ensuring that the regulatory framework remains consistent with global norms.
In addition to establishing a framework for FRTs, the FSRA is also reviewing existing regulated activities to identify necessary amendments. This review will focus on how FRTs may be utilized for services or investments and explore potential changes in the acceptance, holding, or transfer of these tokens for payment services. A separate consultation paper will be issued to address these potential amendments.
The UAE is rapidly emerging as a crypto-friendly destination, with regulatory advancements supporting the region’s digital economy. In May, QCP Capital, a Singapore-based crypto market maker and broker, received in-principle approval from the ADGM for regulated digital asset activities, marking a significant step for the region.
Moreover, in June, the Central Bank of the UAE introduced a new stablecoin licensing and monitoring system. This initiative aims to enhance digital transactions, promote innovation, and strengthen the region's position as a global leader in the digital economy.
As the FSRA’s consultation period progresses, stakeholders are encouraged to provide their feedback on the proposed regulatory framework for FRTs. The insights gathered will play a crucial role in shaping the final regulations, which will be enacted following a review by the ADGM and the FSRA.
The regulatory developments in Abu Dhabi underscore the UAE’s commitment to creating a robust and innovative digital financial ecosystem. As the region continues to attract global investors and crypto enthusiasts, the establishment of clear and effective regulations will be pivotal in fostering a secure and dynamic market for digital assets.
August 2024, Cryptoniteuae