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Cryptocurrency – A new era blooming with UAE regulations looming

CMS Digitalbytes

28 January 2019

"The past 18 months have seen the financial regulator of the United Arab Emirates (“UAE”), the Securities and Commodities Authority (“SCA”) turn a full 180 degrees on their views on issuing initial coin offerings ("ICOs"). Whilst previously there was some concern, the SCA in 2018 confirmed that ICOs would be defined as securities, just in time as the world competes to become the preferred country for blockchain related business.

The crypto race is in full swing and the UAE are pushing forward for first place. A region poised with technological advances and a tenacity to take leadership in the tech–finance sphere are aiming to strike with new regulations for initial coin offerings as early as mid-2019. Although not the first to make a breakthrough on the blockchain front as Malta, Japan and New York appear comfortable with exploring the use of blockchain, the UAE are however the first to confirm they are drafting regulations on such matters. Much like issuing shares, an initial coin offering permits investors to purchase units of cryptocurrency and receive tokens as their equity stake, providing an alternative funding option to SMEs. Regulating initial coin offerings is a credible move by the SCA who will position the UAE as global leaders in the ICO world, should they meet their proposed deadline.

Whilst the buzzword ‘cryptocurrency’ has burst into the business world, what practical benefits do initial coin offerings bring to the future of business? Accuracy and efficiency of transactions via blockchain cryptography will present a secure way to record transactions. SMEs will see a positive swing towards crowdfunding for their businesses and an alternative source of funding to reach their potential. Crypto markets are also deemed more transparent than private company stock, which allows investors to see asset prices in real time. Surely they come with a downside? This rings true but the positive step the UAE are taking to regulate ICOs is a fundamental step in removing one of the key risks associated with ICOs. Regulating ICOs will remove uncertainty and provide a safe environment to invest and for such assets to be recognised, demonstrating an attractive investment opportunity.

We are unaware at this stage what the regulations will entail. However, the SCA have confirmed law firms in the region have been armed to develop the regulatory sandbox and rulebooks for the issuance of ICOs. Alongside this, the SCA are working with the Abu Dhabi Securities Exchange and Dubai Financial Market to develop trading platforms for ICOs next year. This smoothly coincides with the Emirates Blockchain Strategy 2021 and their ambition to become the most promising jurisdiction in the world for cryptocurrency. Whilst eagerly awaiting the regulations, we are confident the UAE will use this opportunity not only to become a leader in the ICO market across the globe but also to stand out as a sounding board for other countries to develop their own regulations."

According to experts, the move is set to position the UAE as a leading regional destination for blockchain-related businesses as it joins the list of global regulators that have decided to standardize ICOs and cryptocurrencies.

Crypto, ICO Regulations Coming to the UAE in 2019

The content above was originally posted on CMS Digitalbytes - CMS lawyers sharing comment and commentary on all things tech.

Authors

Charlotte Choules
Charlotte Choules
Associate
London