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Regulations in digital assets bring more confidence to investors in Gulf countries

Kokila Alagh, Founder of KARM Legal Consultants
(Image credit: KARM Legal Consultants)

When it comes to digital asset regulations, Abu Dhabi Global Market (ADGM) and Central Bank of Bahrain are the forerunners in the GCC, said an industry expert.

Speaking to TechRadar Pro Middle East, Kokila Alagh, Founder of KARM Legal Consultants, said ADGM and the Central Bank of Bahrain have taken the lead in introducing the regulations as well as defining the different types of digital assets.

Moreover, she said that GCC regulators have treated these digital assets on par with other investment models.

“ADGM is one of the first regulators in the world to recognise stable coins and define FIAT tokens, as well as introduce regulations for listing them on an exchange. For example, ADGM’s framework paves way for issuance, trading and exchange of various digital assets,” she said.

KARM Legal has the knowhow in the digital asset and token regulation scheme and is part of the Fintech working group for Arab Monetary Fund and they have been discussing digital assets in a bid to get the regulators to be comfortable with the tech-based companies in the financial world.

Due to Covid-19, she said the world has moved further away from cash-based systems to more digital ones.

 “If I have a technology that gives customer and investor protection, cybersecurity and strong AML, then yes, digital currencies are the way forward. Digital currencies cut down transactional costs drastically and help in ease of doing business,” she said.

Moreover, she said that digital currencies and digital assets are part and parcel of the goal to attain financial inclusion, a part of the UN Sustainable Development Group [UNSDG] Program.

“There is growing evidence that increased levels of financial inclusion, through the extension of savings, credit, insurance and payment services, contribute significantly to sustainable economic growth,” she said.

Fintech sector gets a boost

The digital asset regulations and fintech initiatives by various GCC regulators have fuelled the growth of fintech, insurtech, compliance, digital identity, cybersecurity and regtech startups in the region and most regulators in the region have regulatory sandboxes to test solutions before launching them into the market.

A Regulatory Sandbox is a regulated environment for innovative tech solutions to co-create and test products under regulators’ guidance to deliver feasible services to clients.

As the demand for collaboration between banks, fintechs and regulators continues to grow, she said that sandboxes are important because they allow fintech startups to adhere to laws and regulations while operating in a safe environment to launch new businesses and solutions.

ADGM and DIFC have a regulatory sandbox for fintechs to try out different solutions.

However, she said that ADGM and DIFC are not the only entities moving into the regulation of digital assets, the UAE onshore financial regulator - SCA (Securities and Commodities Authority) - plans to release its digital assets law soon, improving legal security in the realm of digitised and tokenised assets.

 “Digital assets and the associated regulated exchanges will surpass the traditional investment entities in the markets today,” she said.

Investors, today, are more confident in investing in digital assets, issued under the guidance of these regulators, in the region, she said.

 “We will also see the launch of many crypto-asset exchanges from ADGM which will start to be commercially operational exchanges,” she said.

DIFC testing tokenised-based models

While DIFC still has not formulated a framework on crypto assets, Alagh said that they are testing tokenised-based models under their Innovation testing License, the regulatory sandbox of DIFC.

Fintech firms are flocking to DIFC and she said that 87 new fintech firms have joined the DIFC in the first half of this year, an increase of 74% year-on-year with 202 fully licensed fintech firms now operating within the Centre.

Unlike popular opinion, she said that regulation has proven to be less of a hindrance to innovation and creativity and more of an enabler, especially in the GCC region, because it is creating an environment where investors and customers feel safe to dabble in digital assets securely.

“Regulations help startups to innovate create and market product and solutions under a regulatory supportive environment,” she said.