Obtaining Crypto Asset Exchange License at ADGM | Virtual Assets License ADGM

The ABU DHABI GLOBAL MARKET (ADGM) is one of the two Financial Free Zones within the UAE. At the heart of the ADGM model is an independent risk-based regulator, the Financial Services Regulatory Authority (FSRA), which grants licenses and regulates the activities of all banking and financial institutions in ADGM. The ADGM is a broadly based recognized and renowned international financial center serving local, regional and international institutions, and serves in the obtainment of Crypto Asset Exchange Licenses and other Financial Licenses.

ADGM is the first jurisdiction in the world to introduce a comprehensive and bespoke regulatory framework for the regulation of spot virtual asset activities, including those undertaken by multilateral trading facilities, brokers, custodians, asset managers and other intermediaries.

ADGM is a leading jurisdiction worldwide for the regulation of virtual asset activities. Its comprehensive framework facilitates the operation of industry-leading virtual asset players in a business-friendly environment. The regulatory framework addresses the full range of associated risks, including those relating to market abuse and financial crime, consumer protection, technology governance, custody and exchange operations. The FSRA considers a Crypto Asset exchange to be a Multilateral Trading Facility using crypto assets.

There are 3 Independent Authorities at ADGM:

• The ADGM Registration Authority (ADGM RA) is responsible for the registration, incorporation, and licensing of legal entities in ADGM and supports all government-related services.
• The Financial Services Regulatory Authority (FSRA), which has two independent bodies (the Regulatory Committee and the Appeals Panel) is a signatory to 88 bilateral MoUs with foreign regulators and international financial centers and a member of the International Organisation of Securities Commissions (IOSCO) & Basel Committee Consultative Group (BCG);. Financial services entities registered in ADGM need to meet specific obligations set out by the FSRA. These obligations are in addition to standard obligations that all ADGM registered entities are required to meet.
• ADGM Courts and its judiciary are modeled on the English judicial system. The direct application of English common law (including the rules and principles of equity plus well-established English statutes on civil matters) makes ADGM the first jurisdiction in the Middle East to adopt a similar approach to that of Singapore and Hong Kong: The foundation of the civil and commercial law in ADGM is provided by the Application of English Law Regulations 2015.

These three authorities ensure that the ADGM offers a highly professional yet business-friendly environment operating with the best practices and recognized by all the major financial centers across the world.

The FSRA’s Virtual Asset framework has been designed specifically for a license for a Regulated Activity in relation to virtual assets permits undertaking one or more virtual asset
activities, including:

• Operating a Multilateral Trading Facility(MTF)
• Providing Custody
• Buying, Selling or exercising any right (whether as principal or agent)
• Managing Assets belonging to another person
• Making arrangements with a view to another person (whether as principal or agent)
• Buying, Selling or providing custody of Assets
• Marketing
• Advising on the merits of Buying or Selling Assets or any right conferred by such Buying or Selling

The fees to obtain a license in relation to conducting a regulated activity in crypto assets are: 

a) Non-Custody Intermediary Activities only = Application Fee of $20,000 and annual supervision fee of $15,000 (irrespective of the number of Non-Custody Intermediary Activities proposed to be undertaken).

b) Virtual Asset Custodian and Non-Custody Intermediary Activities = Application fee of $40,000 and annual supervision fee of $30,000.

c) MTF = Application fee of $125,000 and annual supervision fee of $60,000.

d) MTF and Virtual Asset Custodian = Application fee of $145,000 and annual supervision fee of $75,000.

In addition, an MTF using Virtual Assets must pay to the FSRA a trading levy on a sliding scale basis (as set out in the table below), payable monthly in USD. Unless otherwise determined by an MTF (and agreed to by the FSRA), the FSRA expects that the calculation of average daily value should occur at 12 am Abu Dhabi time (+4hr GMT).

WHAT ARE THE STEPS IN OBTAINING A CRYPTO-ASSET EXCHANGE LICENSE?

• Due diligence and discussion with the FSRA, involving an explanation of the proposed business model, demonstration of proposals to meet the requisite regulatory standards and providing in-depth technology demonstrations across all aspects of proposed virtual asset activities;
• Submission of relevant forms and fees, following the discussions with the FSRA and the FSRA having reasonable comfort that the applicant’s processes, capabilities and technologies are at a sufficiently advanced stage;
• Granting of in-principle approval, which approval will be granted after FSRA has considered the relevant forms and supporting documents and is of the view that the applicant meets all relevant rules and requirements;
• Granting of final approval, where the conditions prescribed under the in-principle approval are met to the satisfaction of the FSRA, within the stipulated timeline. While, generally, this is the last step before the relevant activities could be commenced, in the context of virtual assets, this is conditional upon the FSRA being further satisfied in relation to the applicant’s operational testing and capabilities and completion of a third-party verification of the applicant’s systems where applicable; and
• Operational launch testing and third-party verification of the proposed virtual assets to the satisfaction of the FSRA.

WHAT ARE THE CAPITAL REQUIREMENTS FOR A CRYPTO-ASSET EXCHANGE LICENSE?

An amount equal to up to 6 months’ operational expenses; plus unless the Regulator directs otherwise, an additional buffer amount of up to a further 6 months’ operational expenses.

Note that additional capital requirements may be imposed by FSRA on the review of the application based on the size, scope, complexity, and nature of the activities and operations of the proposed firm.

WHAT ARE THE REQUIRED APPOINTMENTS FOR AN AUTHORIZED FIRM IN ADGM?

• Directors (at least 2, preferably 3-4) – can be outsourced (NEDs).
• Senior Executive Officer (SEO) – In-house, UAE resident (can be a Director).
• Risk Officer (RO) – can be outsourced.
• Finance Officer (FO) – can be outsourced (can also be an Executive Director/Senior Manager).
• Money Laundering Reporting Officer (MLRO) – can be outsourced, UAE resident (can be a CO).
• Compliance Officer (CO) – can be outsourced, UAE resident (can be an MLRO).

HOW CAN WINCORE ASSIST YOU?

• Introduction to the Regulator
• Draft of Regulatory Business Plan (RBP) (Application Forms, Business flow processes & charts)
• Preparation of Financial model for 3 years and draft of ICAAP and IRAP report.
• Preparation of policies and manuals (Compliance, AML, Risk Management, Remuneration, Governance, Conflicts of Interests, Business Continuity Plan etc.)
• Draft of regulatory application for the company and individuals
• Submission of Regulatory Application (with Policies and appointment of SEO, FO, MLRO, RO, CO)
• Provision of full-time functions

SEO – Senior Executive Officer

FO – Finance Officer

RO – Risk Officer

MLRO – Money Laundering Reporting Officer

CO – Compliance Officer Initiation of the entity incorporation process

• Office lease
• Introduction to the UAE Bank for opening an Account
• Issuance of Regulator’s financial services license

Wincore Advisory Group helps businesses to articulate their objectives and aspirations to obtain a Crypto Asset Exchange License. Contact us at contact@wincoreadvisory.com OR +971 4 443 6694.