Abu Dhabi Global Market (ADGM) has issued crypto asset framework in June. Richard Teng, the chief executive officer (CEO) of the Financial Services Regulatory Authority of ADGM, tells Blockchain Asset Review how his framework is “the most comprehensive globally so far” on the emerging asset class.
By Staff Reporter
Q: In the end of June, you issued your crypto asset framework. What is the background work that led to the framework?
A: The market players have been coming to us and telling us that they want to do crypto spot trading (i.e. the trading of Bitcoin and Ethereum etc) in Abu Dhabi. And when we started to examine this, one of the things that we discovered was that it is predominantly retail and sophisticated players dominating the space. But the institutional investors by and large are not yet in that space. Then we started talking to institutional investors to find out why they are not. They said that there are various risks that need to be addressed before they can come in this space.
Q: What are some of the major risks that your framework addresses?
A: We discussed how can we address these risks together. Because in any asset class that is dominated by retail and sophisticated investors, we are bound to see a lot of price volatility. And we started consulting with different parties and with crypto exchanges, and we came out with this framework. We have shared this very freely with G20, International Monetary Fund (IMF), Switzerland, Hong Kong and Singapore regulators. Ours is the most comprehensive crypto framework globally we have seen so far.
Q: How have the regulators been regulating this space thus far?
A: Most regulators regulate this space but they regulate them as money service providers for anti-money laundering, financial crime and know-your-customer (KYC). But if you really want this sector to gain the trust and confidence of the institutional investors, you need to start looking at things like custody and how are these assets are custodized. Because every time coins get stolen, it affects the trust and confidence of the sector. You have to address the issue of technology governance and how do we address the issue of cybersecurity. You need to look at the risk of investor protection. We need to look at how they run their exchanges in terms of market operations.
Q: What makes your framework the most comprehensive?
A: We have provisions on each of these areas addressing various risks, which makes this the most comprehensive regime globally. We do not want to race to the bottom because that is not sustainable over time and you are not attracting the right crowd and right kind of investors. We want to attract the institutional investors and that will bring in the retail and other sophisticated investors because we have the trust and the confidence in the market.
Q: How has the response been so far? Are they already applying to come to Abu Dhabi?
A: We have received good response so far. Global, local and regional crypto asset players are coming to us. These include players in the custody space. Some are coming to us to set up crypto fund management business as well as those who want to do initial coin offerings (ICOs). We also have traditional fund management players trying to get into that space as well. It is not a matter of when. They are already coming. We are not in the position to announce the names but they are ready to come.
Q: Who are your main competitors in this space?
A: I would not say we are competitors. As regulators, we are all supporting different elements of this asset class. We want to make sure that the risks are being addressed. What we are really doing is looking long-term. We do not want short-term players who are looking to make a quick buck but ignoring all the risks. Because then you are not developing the market in a long-term, sustainable fashion. We are in it for the long-term and the players who are coming to us are also looking it as a long-term play. This is also why our regime imposes pretty high standards but that is needed to bring the trust and the confidence into this market.
Q: What do you think of Hong Kong’s new framework?
A: We do speak a lot with Hong Kong’s regulators and we do think that our frameworks are similar. Hong Kong regulators are known to us and ours, of course, came out much earlier.
Q: Are retail investors are allowed to invest in crypto in Abu Dhabi unlike Hong Kong which has banned them?
A: Yes, absolutely. I know Hong Kong has restricted them. But we think we are agnostic on that front. What we do is regulate the exchanges properly so that they comply with the AML/KYC requirements.
Q: What do you think about Singapore?
A: I think Singapore is developing its own framework. I don’t know when they will issue their framework. But we have freely shared our crypto framework with Singapore. I think they have their own considerations.
Q: What do you think are the biggest risks in this space?
A: I think AML and KYC are the risks that people are already aware of. But I think there are other risks that people are not aware of and not addressing but causing problems. As I mentioned, for example, custody management is a real problem because coins get stolen and coins get lost. We need to make sure that there are proper safeguards and proper standards to make sure that coins do not get lost and do not get stolen. Every time that happens, it affects the confidence of investors in the market. It is something that we need to stop from recurring.