BACKGROUND

9) In October 2017, the FSRA published its ICO Guidance, setting out its regulatory position in relation to ICOs, ICOs deemed to be Securities, and Crypto Assets generally. In June 2018, the FSRA formally implemented its Crypto Asset Regulatory Framework, which specifically included the Rules and requirements (including OCAB Guidance) applicable to OCAB Holders. The FSRA released its first update to the OCAB Guidance in May 2019.
10) On the back of the publication of these regulatory frameworks/positions, the FSRA continues to see substantial interest across the digital assets space, including the related use of distributed ledger technology (DLT) platforms. This interest is spread across a wide spectrum of digital asset based financial services activities, including exchanges, custody, dealing, advising, fund management, payment and other-banking related services.
11) Equally, in addition to there being interest across various digital asset-based financial services activities, there is also extensive interest spread across the various types of digital asset-related instruments (including Digital Securities, Crypto Assets, fiat tokens, Derivatives and Funds).
12) This Guidance is intended to provide clarity to those seeking to undertake 'Digital Securities'-related financial services activities within ADGM, including Issuers wanting to make an Offer of Digital Securities and to assist OCAB Holders wanting to extend their digital assets/financial services activities beyond Accepted Crypto Assets. It is also intended to assist entities seeking to utilise new technologies (such as DLT) for the purposes of expanding their activities from the more 'conventional' Securities space into Digital Securities.
13) In terms of Crypto Assets, the OCAB Regulatory Framework (including the OCAB Guidance) provides clarity in relation to what is needed to undertake Crypto Asset-based financial services activity within ADGM. For readers interested in the OCAB Regulatory Framework, the FSRA suggests you read the OCAB Guidance in the first instance.
14) The diagram and table on the following pages set out the FSRA's regulatory approach in relation to the different types of digital asset activities within ADGM.



Category of Digital Assets / Instruments Regulatory Approach
"Digital Securities"

(e.g., digital/virtual tokens that have the features and characteristics of a Security under the FSMR (such as Shares, Debentures and Units in a Collective Investment Fund)).
Deemed to be Securities pursuant to Paragraph 58(2)(b) of FSMR.

All financial services activities in relation to Digital Securities, such as operating primary / secondary markets, dealing / trading / managing investments in or advising on Digital Securities, are subject to the relevant regulatory requirements under the FSMR.

Market intermediaries and market operators dealing or managing investments in Digital Securities need to be licenced / approved by FSRA as FSP holders (including as MTFs or Custodians), Recognised Investment Exchanges, or Recognised Clearing Houses, as applicable.
"Crypto Assets"

(e.g., non-fiat virtual currencies, crypto 'exchange tokens').
Treated as commodities and, therefore, not deemed Specified Investments under the FSMR.

Pursuant to the OCAB Framework, however, market intermediaries (e.g., broker dealers, custodians, asset managers) dealing in or managing Crypto Assets, and Crypto Asset Exchanges, need to be licenced / approved by FSRA as OCAB Holders. Only activities in Accepted Crypto Assets will be permitted.

Capital formation activities are not provided for under the OCAB Framework, and such activities are not envisaged under the Market Rules (MKT).
Derivatives and Collective Investment Funds of Crypto Assets, Digital Securities and Utility Tokens. Regulated as Specified Investments under the FSMR.

Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will need to be licenced / approved by FSRA as FSP holders, Recognised Investment Exchanges or Recognised Clearing Houses, as applicable.
"Utility Tokens"

(e.g., tokens which can be redeemed for access to a specific product or service, typically provided using a DLT platform, do not exhibit the features and characteristics of a regulated investment / instrument under the FSMR).
Treated as commodities and, therefore, not deemed Specified Investments under the FSMR.

Unless such Utility Tokens are caught as Accepted Crypto Assets, spot trading and transactions in Utility Tokens do not constitute Regulated Activities, activities envisaged under a Recognition Order (e.g., those of a Recognised Investment Exchange or Recognised Clearing House), or activities envisaged under MKT.

'Utility Tokens' are not considered appropriate for use in capital formation activities, and are therefore not envisaged for use under the Market Rules (MKT).
"Fiat Tokens"

(e.g., stablecoins whose value are fully backed by underlying fiat currencies).
Treated as a form of digital representation of Fiat Currency.

Where used as a payment instrument for the purposes of Money Transmission as defined under the FSMR, the activity will be licenced and regulated as Providing Money Services.