Abu Dhabi Global Market’s Financial Services Regulatory Authority (FSRA) has issued its guidance on Initial Coin Offerings (ICOs) and virtual currencies under the Financial Services and Markets Regulations (FSMR).

According to the official release, ICO tokens exhibiting the characteristics of Specified Investments will be treated as such within FSRA’s regulatory framework. The FSRA noted that ICOs do not always “fit neatly” into existing regulatory classifications and urged market participants using ICOs to approach FSRA as early as possible in their fundraising lifecycle to determine a proportionate and appropriate treatment within the regulatory regime.

“ICOs have transformed the capital formation landscape and global regulatory frameworks are evolving to adapt to such innovation. Participants exploring the issuance of ICOs that offer real value to the market and wish to operate within our regulatory framework are encouraged to engage us early to gain insights into the applicable regulatory regime,” Richard Teng, Chief Executive Director, FSRA of ADGM, said.

The guidance outlines the regulatory treatment of tokens deemed to be securities as well as when they are not deemed to be securities.

“Where 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 document states, further advising potential investors in unregulated ICOs to exercise extreme caution before committing any funds.

With regard to virtual currencies, the FSRA said:

“From a regulatory perspective, virtual currencies are treated as commodities, which are not Specified Investments as defined under the FSMR. This means that a “mining” or spot transaction in virtual currencies will not constitute a Regulated Activity in itself… Investors seeking a return on capital by purchasing virtual currencies should be aware that they do not benefit from any of the protections afforded to them when investing in Specified Investments (such as Shares, Debentures or Units).”

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