Regulatory treatment of tokens deemed to be Securities

3.3 Whether an ICO is to be regulated under FSMR will be assessed by FSRA on a case-by-case basis. To this end, if the tokens in an ICO are assessed to exhibit the characteristics of a Security, FSRA may deem the tokens as a Security pursuant to Section 58(2)(b)4 of FSMR, hereinafter referred to as “Digital Securities”. Consequently, an issuer seeking to launch an ICO in or from ADGM should approach FSRA at the earliest opportunity.
3.4 For regulatory purposes, issuances of Securities (as defined in Section 258 of FSMR), whether through a DLT platform or other means, will see no difference in their treatment under our regulatory framework. Those issuers/market actors who seek to raise funds in a regulated, robust and transparent manner using new business models or technologies such as DLT are encouraged to engage with us as early as possible in the fund-raising process.
3.5 The requirements for Offers of Securities fall under Sections 58 to 71 of FSMR and Chapter 4 of the Markets Rules (“MKT”). When an Issuer wishes to make an Offer of Securities to the Public in or from ADGM, these requirements include, for example, the obligation to publish a Prospectus under Section 61 of FSMR.
3.6 Offers of Securities may benefit from an exemption under the Exempt Offers regime set out in Rule 4.3 of MKT. In the circumstances specified in that Rule, it should be noted that a Person may make an Offer of Securities to the Public without a Prospectus where any one of the following conditions, amongst other conditions in that Rule, is met:
(i) an Offer is directed at Professional Clients other than natural Persons;
(ii) fewer than 50 Persons in any 12 month period, excluding Professional Clients who are not natural persons; or
(iii) where the consideration to be paid by a Person to acquire Securities is at least USD100,000.
3.7 Additionally, any market intermediaries (e.g., broker-dealers, investment managers, custodians) and primary / secondary market operators dealing in Digital Securities and/or their Derivatives with or on behalf of Clients, will need to be approved by FSRA as Financial Services Permission (“FSP”) holders, Recognised Investment Exchanges or Recognised Clearing Houses (collectively referred to as “Regulated Firms”).

4 Section 58(2) of FSMR sets out that FSRA may, by written notice ‘deem any investment which is not a Security to be a Security for the purposes of these Regulations and the Rules made under these Regulations’.