United Arab Emirates (UAE) is planning to adopt initial coin offerings (ICOs) as means of raising funds for companies and startups. UAE securities regulator made this move to embrace innovative fundraising model.
This system will diversify the means through which companies can raise capital and this will change the way the capital markets work. Weak equity markets and low oil process have been adversely affecting Initial Public Offerings(IPOs) in the country. Hence, introduction of ICOs is expected to stabilise this condition.
Speaking at a seminar, UAE securities market watchdog chief Omar Saif al-Zaabi quoted:
“The board of the Emirates Securities & Commodities Authority(ESCA) has approved considering ICOs as securities. As per our plan, we should have regulations on the ground in the first half of 2019.”
The ESCA started drafting regulations for ICOs with international advisers. It also collaborated with the Abu Dhabi and Dubai stock markets to develop ICO trading platform.
Cryptocurrencies Are Now Commodities
Abu Dhabi- the largest emirate of UAE- issued guidelines on both cryptocurrencies and ICOs. Furthermore, cryptocurrencies are not deemed to be legal tender but are considered as commodities.
The Financial Servives Regulatory Authority (FSRA) stated:
Therefore 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.
Ministry of Economy has proposed new regulations for IPOs that are currently under the review of the Prime Minister.
ICOs- Regulated Only If It Falls Under Security Definition
According to the guidelines proposed, companies offering ICOs are to approach FSRA. The authority will have to determine if the token offering is to be regulated as security. The token offering will remain unregulated it it falls outside the definition of security.
The authorities are taking measures to check the effectiveness of the new law. This law allows family-owned businesses to sell a majority or even 100% stakes in their companies with IPOs. If approved by the Prime Minister, the new law will take effect in 2019. Moreover, the watchdog is also considering to mandate a minimum of 20% female members in boards of publicly listed companies with an intent to encourage female investors.
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