UAE Financial Centre Releases Defi Paper

Abu Dhabi Global Market, the regulatory arm of UAE financial center, has published a discussion paper in which it invites stakeholders to comment on decentralized finance regulation (defi). The regulator’s position regarding anonymity in defi transactions is also clarified in the paper.

For financial institutions, paper is not guidance

The FSRA is a regulatory arm for the UAE financial center ADGM. It has published a discussion paper seeking public comments on the policy considerations of decentralized finance (defi).

The document was released at a time when the defi space has experienced strong growth in both the number and the value of such transactions.

The regulatory arm stated that the discussion paper would serve as a “starting point” for a dialogue about how Defi might be eventually regulated. However, the FSRA clarified that the paper does not provide any “guidance” to financial institutions. The paper contains the regulator’s views on the likely medium-term direction for the period of five to ten years.

Additionally, the discussion paper includes the regulatory arm’s “high-level policies positions on how FSRA might regulate Defi.” It also describes the future regulatory framework for Defi.

Defi Regulation Inevitable

Emmanuel Givanakis CEO of the FSRA stated these words in his remarks after the paper’s launch:

DeFi, a new part of the global financial system, holds the promise to deliver more efficient and customized financial services. To realize this potential, DeFi’s risks must be identified and addressed. We are happy to share our opinions on DeFi and its future direction in the ongoing community discussion, along with industry professionals.

Givanakis said that the inputs of stakeholders will assist the regulator in making informed policy decisions, which will address the risks associated with decentralized finance.

Although the FSRA stated it would consider contributions from stakeholders in its paper, the regulator claims elsewhere that regulation of DeFi is necessary. In addition, the regulator stated that “preserving anonymity for DeFi participants will become increasingly untenable in the medium-term.”

The FSRA has established June 30, 2022 as the deadline to submit comments. The FSRA will then review all feedback received and determine the next steps.