The regulator of the Abu Dhabi Global Market (ADGM), a financial hub and free zone in the emirate, released guidance on non-fungible tokens (NFT) in a consultation paper as it tries to bring the digital assets into its regulatory ecosystem.
ADGM's Financial Services Regulatory Authority (FSRA) "is not proposing to establish a formal regulatory framework for NFTs" at the moment, the paper released Monday said.
According to the draft recommendations, firms that are licensed and regulated by ADGM in services like trading and custody will also be able to offer them for NFTs, said Simon O'Brien, executive director for markets at the FSRA.
"At this stage, the way we're trying to do it is to gradually bring them into our ecosystem," Emmanuel Givanakis, the free zone's CEO. The regulator started looking at NFTs at least six months ago, Givanakis said.
For regulated firms that are following the rules, very little will change, O'Brien said. They might establish a new non-regulated entity within ADGM to work with NFTs, which will outsource regulated activities like custody and client onboarding back to the licensed firm, he said.
The paper is open for comment until May 20, and "quite a number of firms" have already indicated that they're interested in replying, O'Brien said.
"NFTs themselves are not financial instruments," they're comparable to a piece of art, Givanakis said. "If there's a derivative built around them, then yes, then they become a financial instrument," he said.
The paper also proposed new rules on public key management and risk disclosures for virtual asset services providers.
ADGM was one of the first jurisdictions to release a comprehensive regulatory framework for virtual assets back in 2018.