As digital assets built on blockchain revolutionize the world of Fintech, whether in payments, fundraising, and asset ownership and trading, regulators globally and in the MENA region have had to review their own legal structures and determine an approach towards digital assets and the regulation of these assets. As a part of STO LAB MENA’s first initiative, KARM Legal Consultants in collaboration with UK Based Acuity Law and Malta-based LEX Group worked on the comparative Analysis of crypto assets framework across UAE, Bahrain, Malta and United Kingdom.
According to Kokila Alagh, Founder of KARM Legal and the STO LAB MENA, “The STO LAB, which is a ‘one-stop-shop’ for projects aiming at security token issuances, intends to raise more awareness through this publication This report on comparative analysis of crypto assets regulation offers a detailed description of the regulatory regimes in Abu Dhabi Global Market, Central Bank of Bahrain, Malta and the United Kingdom- to evaluate the framework and guidance as well as regulatory processes and responses introduced or adopted by the regulators in this space.”
One of the major points made in the report is the issue of varied terminologies used by different regulatory bodies. As per the report today, there are varieties of terms used often interchangeably to define crypto assets. Crypto asset is widely employed as an umbrella term to refer to digital tokens that are issued and transferred on DLT systems. However, the terms ‘crypto assets’ and ‘tokens’ are colloquially used depending on the context and functionality.
Similarly, the treatment of these assets or tokens by the regulators, vis-à-vis their existing regulations is also a subject of debate and interest. While some regulators have taken a retrofitted approach of fitting in ‘crypto assets’ and ‘tokens’ in their existing financial regulations, some regulators have shown the courage to introduce new regulations altogether.
The report aims to share information on the regulations pertaining to crypto assets in a simplified format that can be easily digested by both laymen and lawmen across the region and globally. It aims to provide startups, investors, policymakers, influencers, holders, with the information they can use when looking into digital assets regulations, licenses, and trading.
Saeed Hareb Al Darmaki, Co-Founder, Alphabit, and advisor to MENA Fintech Association who wrote the forward of the report, said, “I have had the chance to witness the ecosystem around digital assets and blockchain grow and develop into a wide gamut of regulators have emerged and are adopting regulations in the digital assets landscape. The outlook is positive for the sector as we head in 2020, in part due to the strong and highly diverse blockchain hubs cropping up around the world, as well as growing recognition from both incumbents and scaled fintech companies. What remains outstanding in the ecosystem is the better understanding of law and regulations and bridging of the gap between the players and the regulators.”
Marwan Al Zarouni, CEO of Dubai Blockchain Center added, “The blockchain and digital assets space has witnessed a surge in the introduction of guidelines and legislation to regulate the activities in the space. To keep pace with these new prospects and adherence to these new regulations may get overwhelming and confusing. This paper vividly summarizes and compares the various approaches taken by the leading regulators in the world and will be a go-to manual for everyone looking to start and engage in the crypto and blockchain space. It offers an exhaustive view of global hubs and thereby addressing the opportunities and challenges to propel the much-needed growth of this sector.”
The report delves into how different regulatory bodies such as ADGM (Abu Dhabi Global Market), and the Central Bank of Bahrain created completely different categories of tokens that come under the umbrella of crypto assets. Some of these are known as “virtual or digital assets or tokens operating on a blockchain platform and protected by cryptography. Tokens are broad of four types: Payment tokens, Utility tokens, Asset tokens, and Hybrid tokens.
For example, ADGM’s OCAB Framework has classified Digital Assets into:
- Digital Securities
- Crypto Assets
- Fiat Tokens
- Derivatives/ Funds of Digital Assets
- Other Digital Assets
Interestingly, even though the concepts surrounding each of these categories have been included, the FSRA has attempted to fit each of them within their existing framework, as much as possible. According to the report, each of these financial regulators has taken a very stringent view with respect to the issuance of security tokens.
However, one striking addition under the Malta system relates to rules on ICO (or under Maltese law – Initial VFA Offering). The inclusion of limits and parameters which are in line with the offering of securities position internationally is a significant development in the world of crowdfunding. Furthermore, the inclusion of an authorized VFA agent appears to be in the interest of streamlining the whole process, by working closely with agents who would clearly understand regulatory concerns.
In addition, the report looks into the licenses being offered in each territory, the prices of these licenses and the requirements for each. The report concludes that global regulators are analyzing the regulatory approach that they wish to adopt in respect of Digital Assets. Malta, Bahrain, UK, and ADGM have all approached the space from a different perspectives, yet the concepts of anti-money laundering, consumer-protection, and technology governance remain core to the approach.