Cryptoregulation in the ADGM free financial zone
The Abu Dhabi Global Market Free Zone (hereinafter referred to as – “ADGM”) is a tax-free international financial services center located on Al Maria Island in the heart of the UAE capital Abu Dhabi. The Free Zone is administered by three independent bodies: the Registration Authority, the Financial Services Regulatory Authority (hereinafter referred to as -“FSRA”) and the ADGM courts. Hereby we will discuss how ADGM proved itself to become a pioneer regulator to deal with the virtual assets business in the UAE.
Company registration in ADGM.
Companies registered in ADGM enjoy the complete exemption from corporate tax until 2063, without restrictions on foreign ownership, without restrictions on profit repatriation, without taxes and access to a wide range of tax agreements. The company should always have a physical office located on the island of al-Maria, Abu Dhabi, the United Arab Emirates. However, the requirements for the physical office vary depending on business activity.
The registration authority has the right to license and register ADGM enterprises, and is one of the main pillars of ADGM. The main functions of the Registrar under the Companies and Commercial Licensing Regulations include:
- Registration of ADGM based legal entities;
- Registration of company names and maintenance of a public register of companies in the ADGM;
- Registration after registration documentation;
- Registration of changes in company name details;
- Registration of changes in the composition of directors, officers, shareholders and authorized capital;
- Enforcement of ADGM company rules, revocation of commercial licenses, prosecution and exclusion;
- Dissolution or restoration of ADGM businesses.
A commercial license will also be issued upon registration of the company with the ADGM. This document allows the company to conduct business in ADGM in accordance with the approved activities specified in the Commercial Licensing Act. The license is valid for one year and may be renewed upon filing the appropriate form, paying the appropriate registrar fee, and meeting other applicable requirements for commercial license renewal.
The company can also receive an ADGM Tech Startup commercial license. This is a valid commercial license with an incentive (discount) structure of licensed fees, which allows startups that meet the criteria to create and scale their business for up to 5 years of initial work in ADGM.
A Tech Startup license can be obtained by a technology startup with an innovative business concept that:
- meets the ADGM launch criteria;
- has the potential to scale;
- promotes innovation in terms of business applications and deployment;
- has current traction or is at least at the prototype stage;
- can be deployed in the UAE and contribute to the development of the local economy;
- has a business plan with clearly defined milestones against which progress can be tracked;
- falls within the competence of ADGM regulation and business structures;
ADGM’s Technology Startup License does not cover retail, manufacturing or other activities outside of ADGM’s jurisdiction (Al Mariah Island) unless the start-up is dual licensed by the Abu Dhabi Department of Economic Development (DED).
The regulation of crypto assets in ADGM is based on the following rules and regulations:
- Guide to regulate digital security and virtual assets in accordance with the Regulation on financial services and markets;
- Regulation on financial services and markets;
- Code of Practice of the Financial Services Regulatory Authority;
- Regulation on the regulation of activities with virtual assets in ADGM;
- Guide to regulate operations with digital securities in ADGM (manual for digital securities).
The FSRA is the only regulator in the UAE that has issued a regulatory framework specifically designed for cryptocurrencies. It went through a consultation event in May 2018, and then on June 25, 2018, an instruction on the regulation of activities related to crypto assets (Crypto Regs) was issued, and amended in 2021. Crypto Regs regulate activities related to crypto assets, including the activities of exchanges, depositories and other intermediaries in the ADGM free zone.
VASPs- Special requirements
Candidates who want to become an authorized person engaged in regulated activities in relation to virtual assets must be ready to actively interact with FSRA throughout the application process. The process of filing an application as a whole is divided into five stages, namely:
- Due diligence and discussions with the FSRA team(s);
- Submission of an official application;
- Granting approval in principle;
- Providing final approval;
- Operational launch testing.
- Due diligence and discussions with the FSRA team(s).
Before applying, all applicants must provide the FSRA with a clear explanation of their proposed business model and demonstrate how the applicant will comply with all applicable FSRA rules and requirements. During these sessions, applicants will also conduct a series of in-depth technology demonstrations on all aspects of the proposed Virtual Asset activities. FSRA usually expects that these meetings, where possible, will be held between the applicant and FSRA personally. Given the complexity of the activity related to the Virtual Asset Framework, it will probably be necessary to hold a number of meetings between the applicant and the FSRA, before the applicant can submit a project, and then an official application.
- Filing an official application
Following discussions with the FSRA, and after the FSRA is satisfied that the Applicant’s proposed business processes, technologies, and capabilities are at a sufficiently advanced stage, the Applicant will be required to submit the completed Virtual Asset Application Form and supporting documents to the FSRA, paying the applicable official fees. made at the time of application.
The FSRA will only consider an application as formally filed and will begin its formal review of the application upon receipt of both the completed application and associated fees.
Besides, there are three ways to apply for the company registration in the ADGM:
- Online registration which is a preferred ADGM registration method;
- Applications on paper – an additional fee for processing is applied;
- Candidates will be able to complete the registration process using third -party service providers. Service suppliers will be instructed to represent their customers, and they will be able to complete the registration on the same channels mentioned above.
Taking into account the increased risks associated with virtual assets, authorized persons will be under the close supervision of FSRA after receiving a license. It is expected that authorized persons will often meet with FSRA, pass permanent grades and should be ready to pass thematic checks from time to time.
Types of licenses
To operate with crypto-assets, the following licenses are required as specified in the Decision of the UAE Securities and Commodities Authority (SCA):
- Cryptocurrency custody license;
- License to carry out activities to raise funds in relation to crypto assets;
- Cryptocurrency Digital Fundraising Platform License (Article 15);
- License for the crypto assets market.
The abovementioned decision is a comprehensive document. The SCA decision describes the SCA licensing regime for anyone wishing to offer crypto assets in the UAE. This includes ICOs, exchanges, marketplaces, crowdfunding platforms, custody services and related financial services based on or using crypto assets.
As Dhabi’s efforts to diversify its economy, ADGM aims to connect the Emirate to the international markets of the Middle East, Africa, South and East Asia. As the ADGM Virtual Asset framework continues to be understood globally, we continue to see leading Virtual Asset and traditional players around the world turn to the FSRA to see if and how they can set up ADGM Virtual Asset operations. Companies that have chosen to call ADGM their home come from all over the world because they need a jurisdiction that not only understands them, but also has a solid regulatory framework.
The content of this article is intended to provide general guidance on the subject and not legal advice.
Author: Ganna Voievodina, a licensed attorney,
СЕО and co-founder of Manimama Legal & Growth Agency