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Abu Dhabi’s financial watchdog has granted regulatory approval of initial coin offerings (ICOs), but has warned of “many risks” involved in the new crowdfunding model.

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ICOs Get Approval in Abu Dhabi

The Abu Dhabi Financial Services Regulatory Authority (FSRA) has published guidelines on ICOs and cryptocurrency. The regulator said any ICO bearing a resemblance to a security will be governed accordingly.

Under the new protocol, startups wishing to go the ICO route must see FSRA approval. Companies will also be required to publish a prospectus, just like any initial public offering (IPO).

In regulating ICOs, the FSRA warned of an increased “risk of fraud and loss of capital.”

The FSRA adds: “This is particularly likely to be the case where a token issuer promises extremely high investment returns that are disproportionately high relative to those generally available in the market.”

The warning mirrors that of neighboring emirate Dubai, which recently issued a statement clarifying its position.

Abu Dhabi has also labeled cryptocurrencies “commodities” in the same basket as precious metals and energy. As such, they will remain unregulated. However, the watchdog says it may be willing to change its position on cryptocurrency in the future.

Regulatory Response to ICOs Mixed

ICOs have emerged seemingly without warning to become one of the most popular methods for capital raises. More than $2.3 billion has flowed into ICOs this year alone, surpassing early stage venture capital.

However, regulators have struggled to define and effectively control the market, with China, South Korea and more recently Russia issuing a ban on ICO raises.

Russian President Vladimir Putin has warned that cryptocurrencies pose “serious risks” and allow individuals to “launder criminally obtained money, evade taxes and even finance terrorism, as well as, of course, perpetuating fraudulent schemes that obviously may affect ordinary citizens.”

Meamwhile, Japan earlier this year recognized bitcoin as a payment method, but has yet to comment on ICOs.

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