4. Virtual Assets

4.1 As set out in the FSMR, a Virtual Asset is defined as:
A digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction. A Virtual Asset is -
(a) neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Virtual Asset; and
(b) distinguished from Fiat Currency5 and E-money6.”
4.2 Although not legal tender, Virtual Assets (such as bitcoin) have “value” in that they can be exchanged for other things of value, with that value being dependent on considerations of supply and demand. In this respect, Virtual Assets have much in common with physical commodities such as precious metals, fuels and agricultural produce. Therefore from a regulatory policy perspective, Virtual Assets are treated as commodities, instead of Specified Investments as defined under the FSMR.
4.3 Under FSRA’s regulatory framework for Virtual Assets, any market operator, custodian or intermediary dealing in Virtual Assets is required to be approved by FSRA as an FSP holder in relation to the applicable Regulated Activity. Details of FSRA’s approach to the regulation of spot Virtual Asset activities are set out in FSRA’s ‘Guidance – Regulation of Virtual Asset Activities in ADGM’.
4.4 Where a Regulated Firm uses Virtual Assets in an ancillary manner (e.g. as a means to enable or facilitate the carrying on of any financial services businesses), it does not necessary mean that the Regulated Firm needs to seek approvals from the FSRA in order to use Virtual Assets as part of its Regulated Activities. As illustrated in paragraph 2.2, an authorised money remittance house does not need to apply for specific approvals from the FSRA to use Virtual Assets if it merely uses Virtual Assets as a medium of exchange to facilitate the remittance of fiat currencies on behalf of Clients across jurisdictions. The Regulated Firm will, however, have to demonstrate that the use of the Virtual Asset, used in such ancillary manner, is fit for purpose, e.g., putting in place control requirements to address technology and security risks associated with the use of the Virtual Asset. On the other hand, for example, if the Regulated Firm offers its Clients services to exchange Virtual Assets for fiat currencies, the Regulated Firm will need to apply to, and be authorised by, the FSRA to use Virtual Assets as part of its Regulated Activities.

5 “Fiat Currency” means government issued currency that is designated as legal tender in its country of issuance through government decree, regulation or law.
6 “E-money” means a digital representation of Fiat Currency used to electronically transfer value denominated in Fiat Currency.