What You Need To Know About ICOs: Christopher Kew-Smith, Head of Fintech, FSRA, ADGM What offerers and investors need to understand about Initial Coin Offerings (ICOs) to avoid getting burned.
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Entrepreneur Middle East asked a few UAE-based investors and entrepreneurs about their thoughts on the brave new world of Initial Coin Offerings (ICOs). Here's what Christopher Kew-Smith, Head of Fintech Strategy, Financial Services Regulatory Authority (FSRA), Abu Dhabi Global Market (ADGM), told us.
How are regulatory bodies reacting to the financial disruption posed by ICOs?
"The market for ICOs is incredibly broad. We, at the FSRA of ADGM, are acutely aware that ICOs do not always fit neatly into existing regulatory classifications. Therefore, a one-size-fits-all approach is not appropriate. This was laid out in a Guidance which we released in October 2017. In our ADGM RegLab, we have one fintech firm that wants to use the ICO technology to facilitate offerings of securities and run a blockchainpowered stock exchange. We, at the FSRA, view this as a legitimate use of innovative technology and since it concerns a regulated product, the firm requires authorization from us. There are, of course, other ICOs that are offerings of products which are not regulated, such as utility tokens. Additionally, we have classified cryptocurrencies as commodities; therefore, spot transactions in these are not regulated (although derivatives on cryptocurrencies are regulated products.) Besides exercising our supervisory powers (as the FSRA) in the regulated space, we also included a consumer warning in our Guidance regarding the volatility of cryptocurrencies and ICOs and the risk of fraud. The recent announcement from the UAE's Securities and Commodities Authority has voiced similar concerns that we have. ICOs and cryptocurrencies are an extremely high-risk market, so we, as a financial service regulator, have urged the market to exercise due caution when engaging in it.
On February 10, 2018, ADGM announced that we were reviewing and considering the developing of a regulatory framework to regulate and supervise activities of virtual currency exchanges and intermediaries. We are currently using our ADGM RegLab and broader industry engagement to enhance our knowledge of the token market and reviewing what additional amendments are needed in our regulatory framework to accommodate new risks and business models enabled by blockchain technology and cryptocurrencies. It is not our practice to predict what global regulators more broadly will do with cryptocurrencies– there have been divergent approaches. However, we participate in international regulator forums, such as the International Organization of Securities Commissions (IOSCO) and Basel, to actively engage in the regulatory dialogue, and ensure that the interests of the UAE are represented."
Tips on approaching ICOs- for investors and entrepreneurs
"ICOs are still, for the most part, unregulated, so this has remained a very high-risk market for investors. The information provided for each token offering is extremely variable, and due to the lack of any controls on the quality of ICOs, and their international nature, investors who are defrauded have little recourse. From an entrepreneur's perspective, the ICO investor market does offer a new source of capital. However, they should remember to be careful who they are taking money from– taking money from the wrong investor might mean irreparable reputational damage or breach of laws."