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The UAE’s Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has published consultation paper No. 7 of 2024, containing proposals to enhance its regulatory framework to allow the issuance of fiat-referenced tokens (FRTs) from the ADGM and invites the public feedback and comments on the proposals.
As per the <a href="https://adgmen.thomsonreuters.com/sites/default/files/net_file_store/Consultation_Paper_No._7_of_2024_FRTs.pdf" rel="noopener noreferrer nofollow" target="_blank">announcement</a>, FRTs are a category of stablecoins that are backed by high-quality, liquid assets denominated in the same currency as the FRT and that can be liquidated rapidly with minimal adverse price effect.
FRTs are intended to be used as a means of payment and share certain characteristics with Stored Value.
<h3 class="wp-block-heading" id="frts-qualify-as-stablecoins">FRTs qualify as stablecoins</h3>
According to the consultation paper, while all stablecoins establish their value in reference to a fiat currency, asset-referenced tokens and commodity-backed tokens are not considered ‘stable’ due to the fluctuation of the value of their underlying asset, as expressed in fiat currency.
So as such all FRTs may qualify as stablecoins, but not all stablecoins may qualify as FRTs.
As such the consultation is not to propose to introduce new Regulations or Rules to address commodity and asset-backed tokens. This will be considered in due course later on.
While the most recent version of the FSRA’s <a class="editor-rtfLink" href="https://en.adgm.thomsonreuters.com/rulebook/guidance-regulation-virtual-asset-activities-adgm-18-december-2023" target="_blank" rel="noopener noreferrer nofollow">guide</a> discussed stablecoins in general and distinguished them from virtual assets, the FSRA’s legislation will now specifically address FRTs and their issuance.
The FSRA is proposing to adopt a risk-based and proportionate approach to FRT issuance in response to industry demand, based on appropriate regulatory requirements that incorporate the necessary safeguards to ensure that FRT issuers operate in a safe and sound manner and informed by current practices in leading jurisdictions.
The consultation paper notes that the current set of Regulated Activities would require the issuer of an FRT to seek an FSP enabling Providing Money Services, specifically for the issuance of Stored Value. However, the FSRA in ADGM believes that the rulebooks are too restrictive to support FRT issuance.
The FSRA wants to adopt a policy approach similar to the regulatory frameworks of the New York Department of Finance, the EU as represented by the Markets in Crypto-Assets Regulation, the Monetary Authority of Singapore, HM Treasury and the Financial Conduct Authority in the UK, as well as the Hong Kong Monetary Authority.
<h3 class="wp-block-heading" id="frts-will-be-a-medium-of-exchange">FRTs will be a medium of exchange</h3>
FRTs will be used as a medium of exchange; achieves a stable store of value by referencing a fixed amount of a single fiat currency; and enables the holder to redeem the FRT in exchange for the amount of the fiat currency referred to in from its issuer upon demand.
Issuance of FRTs would constitute a new Regulated Activity, distinct from the issuance of Stored Value within the Financial Services and Markets Regulations 2015 (FSMR), with commensurate conduct of business and prudential requirements.
The consultation period will close on 3 October 2024.
<h3 class="wp-block-heading" id="uae-central-bank-regulates-stablecoins">UAE Central Bank regulates stablecoins</h3>
This announcement comes just after the Central Bank of the UAE came out with their stablecoin regulation that allows the usage of Dirham-backed stablecoins for payment for goods and services within the UAE.
UAE Stablecoin Payment Token Services <a href="https://rulebook.centralbank.ae/en/rulebook/payment-token-services-regulation" target="_blank" rel="noopener noreferrer nofollow">Regulation</a>&nbsp;came out laying down the rules and conditions by the Central Bank of UAE for licenses pertaining to payment tokens, not allowing algorithmic tokens to be included and only allowing foreign stablecoins to be used to purchase virtual assets.
As per the UAE Central Bank, payment tokens are virtual assets which purport to maintain a stable value referencing the value of the same fiat currency as the payment token is denominate in or another payment token also denominated in the same fiat currency.
Cryptopolitan reporting by Lara Abdul Malak

ADGM to regulate fiat-referenced tokens for payment in UAE

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