The Financial Services Regulatory Authority of the Abu Dhabi Global Market considers that where cryptoassets have characteristics of shares, debentures, or units in collective investment funds, they are to be treated as securities. The Authority considers “utility tokens” and “non-fiat” cryptocurrencies to be commodities, and offers of such cryptocurrencies are not regulated by the market regulations. Documents produced by the Authority related to the regulation of cryptoasset activities describe requirements related to risk disclosure and for the protection of clients’ transactions and information.
Law No. 20 of 2018 on Money Laundering defines laundered funds to be assets in whatever form, including digital currencies.
I. Treatment of Assets Created Through Blockchain
A. Financial Regulation and Consumer Protection
1. Abu Dhabi Global Market Legal Framework
The Abu Dhabi Global Market (ADGM) was established pursuant to Abu Dhabi Law No. 4 of 2013 as a financial free zone in the Emirate of Abu Dhabi (one of the nine emirates of the United Arab Emirates). The legislative and regulatory framework of the ADGM includes the following: federal legislation; Law No. 4 of 2013 issued by the Emirate of Abu Dhabi; and ADGM special financial regulations. The federal legislation encompasses the following legal instruments: Federal Law No. 8 of 2004 regulating financial activities in the United Arab Emirates; Federal Decree No. 15 of 2013 on the establishment of the Mariyah Island free trade zone; and Cabinet Resolution No. 28 of 2007 regulating fees related to financial transactions in the free trade zones.
At the local level, Abu Dhabi Law No. 4 of 2013 regulates the administrative structure of the ADGM, such as the functions of the market’s board of directors. Finally, the framework includes the ADGM court’s regulations and procedures, arbitral and commercial regulations, and the Financial Services and Markets Regulations.
2. Financial Services and Markets Regulations 2015
The Financial Services and Markets Regulations 2015 were issued by the Board of Directors of the ADGM on October 4, 2015, and have been amended a number of times. The instrument regulates financial services in the ADGM and contains various provisions related to “accepted” cryptoassets and the operation of cryptoasset businesses, including exchanges and providing custodian services, in the ADGM.
Article 258 of the 2015 regulations, which was amended on June 25, 2018, defines ”crypto asset” 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.” Cryptoassets are also distinguished from “fiat currency,” which is a government-issued currency that is designated as legal tender in its country of issuance through a government decree.
The Financial Services Regulatory Authority (FSRA) of the ADGM has produced the following documents that include information on the regulation of cryptoassets:
- The Conduct of Business Rulebook;
- A guidance document on the regulation of cryptoasset activities in the ADGM (Cryptoasset Guidance); and
- A guidance document on the regulation of initial coin/token offerings under the Financial Services and Markets Regulations 2015 (ICO Guidance).
3. Consumer Protection
The FSRA must grant a license to market intermediaries and operators who deal or manage investments in security tokens. Cryptoasset custodians are required to carry out reconciliations of clients’ money every week. They also must send out monthly statement of a client’s cryptoasset holdings.
The Conduct of Business Rulebook states that, “[p]rior to entering into an initial Transaction for, on behalf of, or with a Client, an Authorised Person Operating a Crypto Asset Business shall disclose in a clear, fair and not misleading manner all material risks associated with (i) its products, services and activities (ii) Crypto Assets generally and (iii) the Accepted Crypto Asset that is the subject of the Transaction.”
It is mandatory for cryptoasset businesses to use blockchain technology to store all information related to transactions done by their clients. Furthermore, they must provide such information to the FSRA at any time if requested.
To protect clients’ personal information and transactions, cryptoasset businesses must take appropriate technical measures to secure their clients’ data. The Conduct Business Rulebook indicates the following:
An Authorised Person Operating a Crypto Asset Business must, as a minimum, have in place systems and controls with respect to the following:
. . .
(d) A security plan describing the security arrangements relating to:
(i) the privacy of sensitive data;
(ii) networks and systems;
(iii) cloud based services;
(iv) physical facilities; and
(v) documents, and document storage.
Cryptoasset businesses must also have a plan articulating the process of protecting client information and transaction data in the event of an unplanned system outage. In the event of a planned outage, clients must be informed ahead of time. 
Article 3 of Law No. 8 of 2017 on value added tax imposes a 5% tax on imported and exported commodities. This tax may apply to “utility tokens” since the FSRA considers them to be commodities, as discussed below.
According to the Conduct of Business Rulebook, cryptoasset businesses have an obligation to declare international income for tax purposes as set out in the guidance notes on the requirements of the Intergovernmental Agreement between the United Arab Emirates and the United States.
C. Anti-Money Laundering Law
Article 1 of Law No. 20 of 2018 on Money Laundering defines laundered funds as assets in whatever form, whether tangible or intangible, movable or immovable, including national currency, foreign currencies, documents or notes evidencing the ownership of those assets or associated rights in any form including electronic or digital forms or any interests, profits or income originating or earned from those assets.
According to the Cryptoasset Guidance, cryptoasset exchanges must report any suspicious activities or transactions to the official authorities. Cryptoasset businesses are required to establish sophisticated transaction monitoring systems to detect possible money laundering activity. Cryptoasset businesses must adopt systems that identify any attempt to breach money-laundering regulations. Such systems may rely on new technological solutions, including monitoring algorithms or artificial intelligence.
Cryptoasset businesses must submit to regular reviews from the FSRA. The FSRA will monitor the cryptoaasset wallets, as well as the origin and destination of cryptoasset funds. The Conduct of Business Rulebook states that
[a]n authorised person Operating a Crypto Asset Business must, as a minimum, have in place systems and controls with respect to the following:
. . .
(c) systems and controls to mitigate the risk of misuse of Crypto Assets, setting out how –
(i) the origin of Crypto Assets is determined, in case of an incoming transaction; and
(ii) the destination of Crypto Assets is determined, in case of an outgoing transaction.
Cryptoasset businesses must perform due diligence on their clients before opening an account. Accordingly, any cryptoasset wallet would be identified and linked to a specific user. If a transaction is detected that originates from or is sent to a “tainted” wallet, the user must be reported. Cryptoasset businesses must maintain a list of tainted wallet addresses and consider the use of third party services to help identify such addresses.
II. Custodianship of Cryptocurrencies by Financial Institutions
According to article 73(B)(5)(a) of the Financial Services Market Regulations 2015,“operating as a Crypto Asset Custodian involves – (a) safeguarding, storing, holding or maintaining custody of Accepted Crypto Asset belonging to another person.”
If a cryptoasset business will not hold the cryptoassets of clients in their custody, this must be fully disclosed to clients upfront. Clients must be informed that the cryptoasset business is not responsible for the custody and protection of clients’ cryptoassets. Where a cryptoasset business will be responsible for the custody of a client’s cryptoassets, the business may provide this service “in-house” through its own cryptoasset wallet solution. Alternatively, they may outsource this service to a third party.
III. Regulation of Cryptoassets as Financial Securities
A. Cryptoassets as Security Tokens
The FSRA considers cryptoassets that have the characteristics of shares, debentures, or units in collective investment funds to be securities. All financial activities related to those securities, such as operating primary or secondary markets, dealing, trading, managing investments in or advising on security tokens, are subject to the regulatory requirements issued by the FSRA.
B. Operating a Cryptoasset Business
Chapter 17B of the Financial Services and Markets Regulations 2015 regulates the activity of operating a cryptoasset business. Article 73B(1) states that “Operating a Crypto Asset Business is a specified kind of activity.” Article 73B(2) stipulates that operating a cryptoasset business involves undertaking one or more cryptoasset activities in or from the ADGM.
Article 73B(3) discusses cryptoasset activities. It states that cryptoasset activities may include the following:
(a) Buying, Selling or exercising any right in Accepted Crypto Asset (whether as principal or agent);
(b) managing Accepted Crypto Asset belonging to another person;
(c) making arrangements with a view to another person (whether as principal or agent) Buying, Selling or providing custody of Accepted Crypto Asset;
(d) marketing of Accepted Crypto Assets;
(e) advising on the merits of Buying or Selling of Accepted Crypto Assets or any rights conferred by such Buying or Selling; or
(f) operating –
(i) a Crypto Asset Exchange; or
(ii) as a Crypto Asset Custodian
Article 73(B)(4) provides that “operating a Crypto Asset Exchange means the trading, conversion or exchange of - (a) Fiat Currency or other value into Accepted Crypto Assets; (b) Accepted Crypto Asset into Fiat Currency or other value; or (c) one Accepted Crypto Asset into another Accepted Crypto Asset.”
Finally, article 73C cites activities that do not constitute “Operating a Crypto Asset Business.” Those activities include the following:
(1) the creation or administration of Crypto Asset that are not Accepted Crypto Asset;
(2) the development, dissemination or use of software for the purpose of creating or mining a Crypto Asset;
(3) the transmission of Crypto Asset;
(4) a loyalty points scheme denominated in Crypto Asset; or
(5) any other activity or arrangement that is deemed by the Regulator to not constitute Operating a Crypto Asset Business, where necessary and appropriate in order for the Regulator to pursue its objectives.”
Article 73D states “[a] person does not operate a Crypto Asset Exchange if it operates a facility which is merely an order routing system where Buying and Selling interests in, or orders for, Accepted Crypto Asset are merely transmitted but do not interact.”
C. Regulation of Initial Coin/Token Offerings
The ICO Guidance states that ICOs can take many forms. However, all of those forms utilize Distributed Ledger Technology (DLT). It states that “[i]nvestors will typically give a Crypto Asset to an ICO issuer in exchange for a proprietary digital medium of exchange on the DLT platform, being termed a “coin” or “token” (where the latter term will be used hereafter).”
The ICO Guidance further states that an emerging method of fundraising uses DLT with the tokens representing a “traditional” regulated issuance, such as shares, debentures, or units in a collective investment fund.
According to the Guidance, whether an ICO is to be regulated under the Financial Services and Markets Regulations 2015 will be assessed by the FSRA on a case-by-case basis. It further states that “[i]f 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)2of FSMR, hereinafter referred to as “Security Tokens.””
With respect to issuances of securities, the ICO Guidance states as follows: “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.”
In terms of offers of securities, the ICO Guidance states that
[a] Person may make an Offer of Securities to the Public without a Prospectus where any one of the following 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.
The ICO Guidance states that “derivatives of Crypto Assets are regulated as Commodity Derivatives and hence, a type of Specified Investment under the FSMR [Financial Services and Markets Regulations 2015]. Consequently, any market operators or market intermediaries dealing or managing investments in Derivatives of Crypto Assets will be subject to the appropriate regulations and rules applicable under FSMR.”
IV. Treatment of Cryptoassets Not Considered Securities
According to the Cryptoasset Guidance, cryptoassets such as non-fiat cryptocurrencies are not considered securities and are treated as commodities. Utility tokens are also treated as commodities. The FSRA states that “non-fiat currency” and “utility tokens” do not exhibit the features and characteristics of a regulated investment. Spot trading and transactions in utility tokens are not regulated by the market regulations.
The ICO Guidance also addresses tokens that are not deemed to be securities. It states that, “[w]here tokens do not have the features and characteristics of Securities such as Shares, Debentures or Units in a Fund, the offer of such tokens is unlikely to be an Offer of Securities, nor is the trading of such tokens likely to constitute a Regulated Activity under FSMR.”
The Guidance further states that
[i]n unregulated ICOs, investors do not benefit from any of the safeguards that accompany a regulated Offer of Securities. Reliable information regarding the issuer, and what it plans to do with the funds raised may be lacking. The risk of fraud and loss of capital is therefore significantly higher. This is particularly likely to be the case where a token issuer promises extremely high investment returns that are disproportionately high relative to those generally available in the market. We advise potential investors in unregulated ICOs to exercise extreme caution before committing any funds.
Prepared by George Sadek
Foreign Law Specialist
 See ADGM Legal Framework, Abu Dhabi Global Market (ADGM), https://www.adgm.com/doing-business/adgm-legal-framework/ (last visited Mar. 26, 2019), archived at https://perma.cc/8MMF-W8YX.
 Financial Services and Markets Regulations 2015, art. 258 (at p. 169), http://adgm.complinet.com/net_file_store/new_rulebooks/f/i/Financial_Services_and_Markets_Regulations_FSMR_2015_Consolidated_March_11_2019.pdf, archived at https://perma.cc/32DP-FKEC.
 Id.; Financial Services Regulatory Authority (FSRA), ADGM, Guidance – Regulation of Crypto Asset Activities in ADGM 4 (June 25, 2018), https://www.adgm.com/media/304701/guidance-regulation-of-crypto-asset-activities-in-adgm-25th-june-2018-2.pdf, archived at https://perma.cc/MU4D-QDBX.
 FSRA, ADGM, Conduct of Business Rulebook, (COBS VER06.110319, Mar. 11, 2019), http://adgm.complinet.com/net_file_store/new_rulebooks/c/o/COBS_VER06.110319.pdf, archived at https://perma.cc/KGE4-WSLU;
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3.
 FSRA, ADGM, Guidance – Regulation of Initial Coin/Token Offerings and Crypto Assets under the Financial Services and Markets Regulations (June 25, 2018), https://www.adgm.com/media/304700/guidance-icos-and-crypto-assets_20180625_v11.pdf, archived at https://perma.cc/JH8L-ZTRJ.
 Conduct of Business Rulebook, supra note 4, para. 17.8.3(a). See also Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 31.
 Conduct of Business Rulebook, supra note 4, para. 17.6.1. See also Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 24.
 Conduct of Business Rulebook, supra note 4, para. 18.7. See also Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 17.
 Conduct of Business Rulebook, supra note 4, para. 17.5(d). See also Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 20.
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 23.
 Law No. 8 of 2017, issued on August 23, 2017, https://www.mof.gov.ae/ar/lawsAndPolitics/govLaws/Documents/نسخة النشر 1مرسوم بقانون ضريبة القيمة المضافة 23 أغسطس 2017 .pdf(in Arabic), archived at https://perma.cc/3MLL-AHHC.
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 5.
 Conduct of Business Rulebook, supra note 4, para. 17.4.1 (“International Tax Reporting Obligations”).
 Law No. 20 of 2018, issued on September 23, 2018, https://www.mof.gov.ae/ar/lawsAndPolitics/govLaws/Documents/مرسوم بقانون اتحادي رقم 20 لسنة 2018 في شـأن مواجهة جرائم غسل الأموال ومكافحة تمويل الإرهاب وتمويل التنظيمات غير المشروعة .pdf (in Arabic), archived at https://perma.cc/LV5C-EZXR.
 Financial Services and Markets Regulations 2015, art. 149(2) (“Obligation to Report Transactions”).
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 17.
 Conduct of Business Ruleook, supra note 4, para. 17.5(c) (“Origin and Destination of Crypto Asset Funds”). See also Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 18.
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 22.
 Financial Services and Markets Regulations 2015, art. 73B(5)(a).
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 7.
 Id. at 5.
 Financial Services and Markets Regulations 2015, ch. 17B (Operating a Cryptoasset Business).
 Id. art. 73B(1).
 Id. art. 73B(2).
 Id. art. 73B(3).
 Id. art 73B(4).
 Id. art. 73C.
 Id. art. 73D.
 Guidance – Regulation of Initial Coin/Token Offerings and Crypto Assets, supra note 6, para. 3.1.
 Id. para. 3.2.
 Id. para. 3.3.
 Id. para. 3.4.
 Id. para. 3.6.
 Id. para. 4.5.
 Guidance – Regulation of Crypto Asset Activities in ADGM, supra note 3, at 5.
 Guidance – Regulation of Initial Coin/Token Offerings and Crypto Assets, supra note 6, para. 3.10.
 Id. para. 3.11.
Last Updated: 12/30/2020