Abu Dhabi continues fintech agenda in 2018

Attitudes to cryptocurrency

The FSRA’s open approach has contrasted with other approaches to cryptocurrency globally. Neighbouring emirate Dubai, for example, recently issued a warning about ICOs and is against ICO regulation. China has completely banned ICOs.

Uzair Usman, CEO of global business consultants Kincsem Consultancy, praised Abu Dhabi for being “forward thinking”.

Usman told Computer Weekly: “If regulated in the right way, ICOs could prove to be an exciting way of raising new funds. I believe Abu Dhabi is well positioned to develop a thriving cryptocurrency startup scene if it supports ICOs for the whole Gulf and even the global region.”

But Usman admits that cryptocurrencies are a completely new financial instrument that ­– if not regulated – can lead to a huge grey economy. “In theory, cryptocurrencies can be started by anyone and traded across countries. If left unregulated, illegal payments, money laundering and even criminal activities can be funded through cryptocurrencies.

“ICOs are attractive due to deregulation, however for Abu Dhabi to really make something out of it, it would need minimum regulation to at least safeguard investor funds,” added Usman.

Philip Nunn, CEO of the UK-based investment house Blackmore, agreed that Abu Dhabi is “innovative”.

“Countries and states that aspire to attract new innovation will thrive if they embrace ICOs and don’t over regulate,” he said.

“People mocked the advent of the internet; they said it was never going to work. Then people mocked the advent of peer-to-peer lending and platforms that allowed companies to offer shares in their growing business in exchange for fairer returns and with no need to use bank lending. But ICOs are huge, it’s here to stay, and it’s going to be very big.”

Boon for startups

However, Raghu Mandagolathur, head of research at Kuwait-based research house Markaz, warned that the ICO market is “diverse” in terms of quality and still at a very nascent stage.

“The grey area surrounding ICOs could potentially pave way for fraudulent activities and money laundering,” he said.

Referring to the banning of ICOs in some countries, Mandagolathur said these bans might be temporary.  

“It shows that regulations need to keep up with these crypto-currencies to avoid major scams. This would be the major challenge for Abu Dhabi’s FSRA as it needs to regulate ICOs and bring the offering companies under a regulatory framework, while monitoring their progress closely.”

On balance, Mandagolathur at Markaz, said if ICOs are regulated efficiently, they could prove to be a boon for startups in Abu Dhabi.

“They offer better liquidity to investors unlike venture capital, where funds are locked until there is an IPO or an acquisition,” he said. “Hence, it would be easier for budding startups to find more investors through ICOs at a very early stage rather than relying on VCs.”

Mandagolathur said the United Arab Emirates (UAE) is already at the forefront among Arab nations in the startups space, but “could further consolidate its position and compete globally due to this advancement”.