Coining Stability: ADGM Opens Doors for Stablecoin Issuance

Key takeaways

• ADGM has amended the Financial Services and Markets Regulations 2015 to regulate Fiat-Referenced Tokens.
• Issuing FRTs is now a regulated activity requiring Category 3C Financial Services Permission from the FSRA.
• Entities licenced by the FSRA that issue non-AED-based stablecoins within ADGM or distribute them outside the UAE will not require licensing from the CBUAE.
• The scope of payment services has been expanded to include services related to FRTs, such as transfer, settlement, and safeguarding of these tokens.
• New transparency measures mandate the inclusion of Accepted FRTs in the public record maintained by the FSRA.
• Specific exclusions clarify that certain token transfers without intermediaries are outside the scope of regulated activities.

Background

The Abu Dhabi Global Market (“ADGM“) has taken a significant leap towards regulating the virtual assets ecosystem by amending the Financial Services and Markets Regulations 2015 (“FSMR“) through the Financial Services and Markets (Amendment No. 1) Regulations 2024 (“Amendment“).

Building on its August 2024 consultation paper, which we wrote about here, [1] the Financial Services Regulatory Authority (“FSRA“)[2] has positioned itself as a regulator within the UAE that aims to foster financial innovation.

Key amendment: Stablecoin issuance

One of the pivotal changes is the inclusion of Fiat-Referenced Tokens (“FRTs“) within the scope of regulated activities. Categorised as a specified activity under paragraph 53B of Schedule 1 of the FSMR, this will encompass the creation and distribution of FRTs.

What are FRTs?

FRTs are digital assets pegged to a fixed amount of fiat currency, designed to maintain a stable value.[3] Holders of these tokens can redeem them for the fiat currency on demand. ADGM now distinguishes between “Accepted Fiat-Referenced Tokens” and the more familiar “Accepted Virtual Assets”.

Licensing Requirements

Issuing FRTs is now a Category 3C regulated activity under the FSMR. The Financial Services Permission can be obtained from the FSRA by submitting the application along with the following fees:

• Application Fee: USD 70,000
• Annual Supervision Fee: USD 70,000

Entities intending to operate in this domain must also comply with the other requirements of the FSMR to obtain the required Financial Services Permission.

Adapting to Payment Token Regulations: A Simplified Path for Stablecoin Issuers

The regulation of FRTs in ADGM does not extend to the Central Bank of the UAE (“CBUAE“) licensing regime, as these tokens are categorised as Foreign Payment Tokens under the Payment Tokens Regulations[4] of the CBUAE.

Entities operating within ADGM and distributing stablecoins to individuals outside the UAE or within the financial-free zone are not required to obtain a CBUAE licence. If they cater to the UAE market, they will only be required to undergo a non-objection registration process with the CBUAE instead of the cumbersome licensing journey.

Expanded Scope for Payment Services

The scope of money services businesses licensed to provide Payment Services[5] has been broadened to permit the following:

• Transfer of FRTs: Using payment accounts to facilitate Payment Transactions[6] through FRTs.
• Settlement via FRTs: Enabling Payment Transactions to settle through FRT transfers.
• Safeguarding FRTs: Operating payment accounts to hold and protect FRTs for a Payment Transaction.

Additional use case: This will ease the setup of Payment Accounts[7] for executing the transactions related to Accepted FRTs.

Additional Amendments and Transparency Measures

The amendments also introduce specific exclusions that clarify the scope of regulated activities, such as direct cash payments or token transfers between parties without intermediary involvement.[8]

To enhance transparency, the public record maintained by the Regulator now includes Accepted Fiat-Referenced Tokens and related entities. This aligns with ADGM’s mission to build accountability and trust within the financial ecosystem.[9]

Conclusion

For businesses and founders, these regulatory amendments present a transformative opportunity to tap into the stablecoin ecosystem under a clear and supportive framework. ADGM’s regulatory advancements lower barriers to entry for stablecoin issuance, offering cost-effective licensing and simplified compliance. The expansion of Payment Services to include FRTs further opens new revenue streams for fintech innovators.

As a hub for financial innovation, ADGM’s thoughtful regulatory approach empowers businesses to capitalize on the growing demand for stablecoins while safeguarding the integrity of the financial ecosystem. Founders should consider leveraging this robust framework to scale their operations, gain investor confidence, and explore cross-border opportunities in digital finance.

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[1] Please find our previous article on the initial consultation paper here.

[2] FSRA is the regulatory in the ADGM.

[3] Paragraph 258, FSMR.

[4] Please find our previous article on the Payment Token Regulations here.

[5] Paragraph 258, FSMR.

[6] As per paragraph 258, FSMR, “Payment Transaction” means “an act initiated by the Payer or Payee, or on behalf of the Payer, of placing, transferring or withdrawing Money, irrespective of any underlying obligations between the Payer and the Payee.“

[7] As per paragraph 258, FSMR, “Payment Account” means “an account held in the name of one or more Payers or Payees that is used for the execution of Payment Transactions.“

[8] Paragraph 53A, FSMR.

[9] Article 196, FSMR.