The global regulatory climate for blockchain and digital assets has exhibited great variability and volatility over the prior decade. But at a recent Ripple Regional customer event for Middle East and North Africa (MENA), panel participants explored a new thought leadership-driven regulatory approach from Abu Dhabi Global Markets (ADGM)— an approach that represents more balanced oversight of this new technology, one that will unleash its full potential.
A Measured Regulatory Outlook
Comparing the industry’s evolving regulatory environment to a classic innovation cycle, Ripple’s Head of Government & Regulatory Affairs for APAC Sagar Sarbhai said regulators around the world have shifted from an early “wait and see” approach, which was followed by an over-correction because of “fear and uncertainty,” to a more mature and balanced outlook.
Exemplified by places like Thailand where regulators have ended their outright ban in favor of more nuanced rules that promote innovation but protect stakeholders, this new regulatory environment is more effectively paving the way for the growth and evolution of blockchain and digital assets.
A New Framework for the UAE
ADGM is a financial-services–free zone within the United Arab Emirates (UAE) that has put forward another, more thoughtful regulatory approach that many observers view as enterprise-ready.
Simon O’Brien of the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA), is part of the team tasked with authoring and managing these regulations. He said FSRA’s goal is to build a mature framework that goes beyond basic issues like anti-money laundering (AML) standards to tackle practical needs such as market abuse, transparency and reporting.
Ola Doudin, CEO of exchange BitOasis, reinforced this approach, saying it’s important that people look beyond the price of digital assets to understand its true long-term potential. She said that long-term view is the focus of BitOasis and why—as the largest exchange based in the UAE—her company engaged with ADGM to help develop these new rules.
She credited the FSRA team for “taking a risk” and putting out such a forward-thinking framework when many others in the region were hesitant to build one. Doudin said that BitOasis began the licensing process as soon as the FSRA framework was published and hopes to be the first regulated exchange in the region later this year.
Importance of Global Coordination
Both painted the new ADGM regulations in the context of larger regulatory bodies and markets. O’Brien said FSRA has had conversations with regulators from Japan, Korea, and the United States to learn from their experiences. He also noted that regulators from around the world are looking in turn at what the ADGM has done.
The result he said is that conversations have become bilateral, helping other global regulators understand that the UAE is not a “safe haven” catering only to industry. Instead, over the last year they have begun to look at ADGM as more of a thought-leadership style regime. O’Brien explained “having much bigger friends than us who understand what we’re trying to do has made it easier for us to communicate [what we’re doing].”
Doudin’s vision for digital assets and blockchain reinforces the need for this global cooperation. She said that BitOasis “firmly believes that in the next five-to-ten years, assets – physical or digital, including money – will all be tokenized and the ownership of those assets will be represented on a blockchain or public ledger.” BitOasis is positioning itself as a bridge between traditional financial services and this future of blockchain-enabled financial services.
This level of potential disruption is one reason why regulators around the world are so committed to finding safe ways to engage and monitor these new technologies. European Parliament Member Eva Kaili had echoed a similar sentiment at a recent Ripple Regional event in Europe where she said standardization was important to promote innovation for a technology that has “so much potential for good.”
Bringing Together Marketplace Stakeholders
Of course, global cooperation is only part of the task ahead for ADGM. O’Brien said the body is still focused on working with regional entities like the UAE Central Bank. He mentioned that FSRA has been spending a lot of time helping the bank and its counterparties to understand the new framework in relation to their own appetite for risk.
Key topics in these discussions include AML, KYC, technology governance, asset securitization for investors, fraud controls, and more. O’Brien’s goal is to educate the bank so that it trusts the new framework and more easily engages with ADGM-regulated firms.
Doudin applauded this collaborative approach. She believes that the right regulatory environment can unlock tremendous value from blockchain and digital assets, but only if banks are active participants. She said that the industry cannot operate on its own in isolation, so ADGM’s commitment to interfacing with the UAE central bank is important.
O’Brien doubled down by explaining that it’s important for firms to be regulated, not just licensed. For ADGM’s part, they see regulated firms as having the same status as banks within the jurisdiction.
Ultimately, this balanced regulatory approach and its ability to generate credibility is one that should facilitate more engagement by banks, investors, entrepreneurs and other marketplace stakeholders. Doudin said it all comes down to a “risk and reward” proposition. She believes that this new framework helps create better alignment between government and regulators that will boost more investment in the space.
