Mubasher: The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) published its ‘Guidance for Digital Securities activities in ADGM’ in early September this year to support the development of digital assets within a comprehensive regulatory framework.
A number of financial services activities within ADGM can be included, such as those in relation to exchanges and other trading venues, clearing houses, custodians, brokers and other intermediaries, in addition to issuing, listing, and trading digital securities.
Commenting on this regard, Wai Lum Kwok, ADGM’s senior executive director - capital market at the FSRA told Mubasher that the guidance services to provide support and transparency for industry participants that wish to conduct digital securities activities in ADGM, ranging from established banks or exchanges, to technology firms setting up digital exchanges or platforms to facilitate capital raising by startups, venture capitalists, or private companies looking to scale their businesses.
In a phone interview with Mubasher, Wai Lum Kwok explained that “For example, if a startup wants to raise capital from the private investors, or if a big company wants to do an IPO using digital tokens like the ones enabled by blockchain technology, they can do so under the ADGM’s regulatory regime as set out in the guidance.”
“Digital securities can be a very efficient way of raising capital to support economic growth,” Wai Lum Kwok pinpointed.
Instead of issuing a paper certificate as a form of ownership, the investors can subscribe for and receive digital tokens in a transparent fashion, ADGM’s senior executive director added.
Besides promoting efficiency in the capital raising process, digital securities can also encourage liquidity in the secondary market because they can be traded easily from one person to another. This is attractive to investors in the private placement markets, which are typically illiquid in nature, he further noted.
Wai Lum Kwok told Mubasher that ADGM’s rules and regulations allow them [investors] to trade digitally, but only in a way that complies with our rules and regulations. For example, if a company wants to issue a digital security token, the framework will require the issuer to have proper controls and governance to ensure that the technology enabling the issuance is sound.
To protect the interest of investors, the company issuing the digital securities are subject to prospectus disclosure requirements so that investors know what they are investing into, Wai Lum Kwok said, adding that for investors, there are other safeguards in place, including regulations and rules around the safe handling and custody of their monies and investments. In short, if you are carrying on a securities business, be it in the conventional or digital mode, the full suite of securities markets regulations is brought to bear on the participant.
(Contributed by Ingy ElSafy)