Issuing Stablecoins in ADGM Free Zone

Abu Dhabi Global Market (ADGM) has introduced a purpose-built regime for fiat-referenced stablecoins, called Fiat-Referenced Tokens (FRTs), supervised by the Financial Services Regulatory Authority (FSRA). The framework creates a dedicated regulated activity for issuance, aligns payments-use cases with Payment Services, and sets out white-paper, redemption, reserve, assurance and disclosure duties designed for payments-grade stability and holder protection.

Below we map the regulatory perimeter, permissions, prudential expectations, operational mechanics, and practical structuring choices for launching an FRT from ADGM, with clause-level references to the governing instruments.

1) Regulatory perimeter: what FSRA now regulates

1.1 “Fiat-Referenced Token” definition (what counts as a stablecoin in ADGM)

An FRT is a digital asset recorded on DLT whose purpose is to function as a medium of exchange with a stable store of value by (a) referencing a fixed amount of a single fiat currency and (b) enabling redemption on demand from its issuer at par in that fiat currency.

1.2 New regulated activity: Issuing a Fiat-Referenced Token

FSRA has added “Issuing a Fiat-Referenced Token” as a specified kind of activity under the Financial Services and Markets Regulations (FSMR). Practically, an FRT issuer needs a Financial Services Permission (FSP) covering this activity.

1.3 Payment Services that involve FRTs

FSRA also classifies certain payments-use interactions with FRTs as Payment Services, namely:

• transferring an FRT to effect a Payment Transaction;
• enabling settlement of a Payment Transaction via FRT transfer; and
• operating a Payment Account to hold/safeguard FRTs for payment purposes.

A Payment Transaction now expressly includes placing, transferring or withdrawing Money or an FRT.

Important exclusions. The issuance of an FRT is not a Payment Service (it is the separate regulated activity above), and peer-to-peer payments executed wholly in cash or by direct FRT transfer without an intermediary do not constitute Payment Services.

1.4 “Accepted FRTs” and the public record

FSRA must publish and maintain a public record that includes each Accepted Fiat-Referenced Token – defined as an FRT that, in FSRA’s opinion, meets the requirements allowing regulated activity to be carried on in relation to it. This functions as an admissions gate for ADGM-regulated firms.

2) Who needs permission – and for what?

• If you mint the token → you need the FSP for Issuing a Fiat-Referenced Token.
• If you provide rails (e.g., transfer, settlement, Payment Accounts) for payment uses of an FRT → you need Payment Services permission.0
• Group structuring: FSRA prohibits an Authorised Person that has issued an FRT from conducting other regulated activities not incidental to that issuance. Many sponsors therefore place the issuing activity in a ring-fenced entity, with affiliate(s) separately authorised for other activities.

3) White paper: content, prominence and updates (COBS Chapter 19A)

Before issuance, an Authorised Person must publish a white paper on its website and maintain it while the token is in circulation; the white paper must prominently state it is not approved by the Regulator and that the Authorised Person is responsible for its content.

Mandatory content includes (non-exhaustively):

• issuer details and holder rights (notably par-value redemption and any time-based payments);
• redemption processes, including extensions under market stress;
• the stability mechanism;
• proposed Reserve Investments and Relevant Money composition;
• risk factors (including loss-of-value scenarios); and
• technology and standards applied.

Update duty. The white paper must be updated if it becomes materially inaccurate or at least annually.

4) Issuance and redemption: par, timelines, currency, fees

Issuance at par without delay upon receipt of fiat funds; redemption at par must be completed no later than T+2 working days after CDD (if required), with redemption payments in the reference fiat currency. FSRA may extend the period in stress conditions.

Permissible fee. Redemption may be subject to a proportionate, cost-based fee, only if that fee is stated in the white paper.

What “T+2” means. T+2 excludes ADGM weekends/holidays and time needed for interbank transfer to the redeemer’s account. Design liquidity lines accordingly.

5) Reserves, custody, denomination and segregation

5.1 Where the money goes

Payments received for issuance are Relevant Money and must be either:

• kept in a Client Account (following Client Money rules), or
• invested as Reserve Investments held in one or more Reserve Accounts with Third-Party Agents approved by FSRA.

All Relevant Money and Reserve Investments must be denominated in the reference fiat currency of the FRT.

5.2 Reserve governance tools FSRA can use

FSRA may direct divestment of Reserve Investments and require proceeds be held as Relevant Money; material reserve changes require prior notice to FSRA.

If you issue more than one FRT, reserves must be segregated per token.

5.3 Client/Reserve Account mechanics and “no rehypothecation”

1. Client/Reserve Accounts must be titled appropriately and recorded on a master list; firms must not use a client’s Safe Custody Assets for their own purposes (and, unless Chapter 19A permits otherwise, must not use Reserve Investments at all for their own purposes).
2. When using a Third-Party Agent (bank/custodian/settlement agent, etc.), the issuer must assess suitability, ensure equivalent protections, and have a written acknowledgement covering segregation, instructions, statements, and – for Reserve Investments – a lien in favour of the FRT holders.

6) Coverage, daily valuation, stress testing and breach management

Always fully covered. The market value of all Reserve Assets must at all times equal or exceed the total outstanding par redemption value of the FRT.

Daily valuation is required to verify coverage, and issuers must notify FSRA immediately if a breach is or may be occurring.

Stress tests are required at least annually (or more often, if asked), addressing liquidity stress such as large-scale redemptions; written results must be submitted to FSRA.

7) Assurance and disclosure cadence

• Monthly independent attestation by an FSRA-approved third party covering Relevant Money, Reserve Investments (by type and value), total par outstanding, and whether coverage ≥ redemption value. This must be filed with FSRA (and is expected to be made public alongside your disclosures).
  
• Annual independent audit of reserve composition/valuation and of internal controls/compliance for reserve management, with results filed within four months after financial year-end.

Why this matters operationally: Your treasury, custody and finance functions must generate audit-ready data monthly and support year-end audits – plan for automation and reconciliations from day one.

8) Holder protections, priority and resolution

Holders enjoy pro-rata claims to the Relevant Money and Reserve Investments. If reserves or money are placed with non-ADGM agents, the issuer must ensure holders’ claims rank ahead of other issuer creditors in that jurisdiction.

If coverage falls short or a breach is perceived, FSRA can direct liquidation of reserves and require proceeds to be maintained as Relevant Money; following a Pooling Event or breach, the issuer must liquidate reserves and distribute pro-rata at par (first) per the white paper.

9) Payment-services overlay (if you provide FRT rails)

If you also provide Payment Services using FRTs (transfer, settlement, Payment Accounts), you must comply with the broader COBS Chapter 19 risk-management and incident-reporting duties for payment firms – i.e., operational/security risk frameworks, incident classification, annual risk assessments, notifications to FSRA without undue delay, and user notification if there is (or may be) financial impact.

10) How ADGM’s model compares (briefly) with other UAE regimes

• VARA (Dubai, outside DIFC) regulates FRVAs for virtual-asset ecosystem use, not for general payment in the UAE, and excludes AED-referenced tokens (reserved to the CBUAE). FSRA’s FRT regime is explicitly tailored to issuance + payment-service rails within ADGM, with its own white-paper, reserve and assurance cadence.
  
• CBUAE (federal) regulates payment tokens used as Means of Payment onshore; redemption timelines and consumer-protection disclosures follow the central-bank rulebook, not FSRA’s. (If your use cases will be primarily onshore retail payments, consider the CBUAE route.)

Takeaway: Choose your regulatory home by use-case and client base. If you are building issuance + payments infrastructure for a fiat-pegged token from ADGM, FSRA’s FRT regime is the relevant path.

11) Implementation roadmap (what good looks like)

A) Structuring and permissions

• Establish an issuer entity in ADGM and obtain FSP – Issuing a Fiat-Referenced Token. Keep other regulated activities outside the issuer unless incidental.
• If you will operate rails (wallets/payment accounts, transfer/settlement), secure Payment Services permission.

B) White paper and governance

• Draft the white paper with all required items (par redemption, redemption process and possible extensions, stability mechanism, reserve composition, risk factors, tech standards). Publish pre-launch and update annually or upon material change.

C) Redemption operations

• Engineer T+2 par redemption in the reference currency, with fee logic (if any) disclosed and cost-based. Build settlement playbooks for stress events consistent with FSRA’s extension discretion.

D) Reserves and custody

• Route issuance proceeds to Client Accounts (Chapter 14) or to Reserve Investments in Reserve Accounts with FSRA-approved Third-Party Agents; ensure reference-currency denomination and per-token segregation. Obtain agent acknowledgements with FRT-holder lien for Reserve Investments.

E) Coverage, valuation and stress testing

• Implement daily coverage checks with immediate breach notification; run annual liquidity stress tests (or more often if directed) and file written results.

F) Assurance and disclosures

• Set up monthly independent attestation and annual audits (reserves + controls) with filing deadlines; align your public disclosures to the attestation results.

G) Payment-services risk management (if applicable)

• Build operational/security risk frameworks, incident classification/notification, and user communications consistent with COBS 19.23.

H) Resolution and priority planning

• Document pro-rata holder claims, priority over issuer creditors when assets are outside ADGM, and FSRA-directed liquidation protocols. Test Pooling Event runbooks.

12) Design choices that will matter to FSRA

• Reference currency selection. Operationally favour deep-liquidity fiats; all Relevant Money/Reserves must be in that fiat.
• Reserve topology. Avoid concentration in a single agent/instrument; ensure segregation by token and rapid monetisation capacity to hit T+2 redemptions.
• Third-party agent diligence. Evidence suitability (financial strength, insolvency regime, regulatory status, concentration risk) and include lien for holders in Reserve Account agreements.
• Assurance cadence discipline. Build a monthly attestation machine; missed filings are a red flag.

13) Common pitfalls (and how to avoid them)

1. Blurring issuance with other regulated businesses. Issuers are barred from conducting non-incidental regulated activities – structure your group accordingly.
   
2. Under-engineering redemption liquidity. T+2 par is firm absent stress-extension; pre-arrange fiat lines and settlement windows.
   
3. Weak reserve legal plumbing. Missing third-party acknowledgements, lien for holders, or failing to segregate per token invites supervision issues.
   
4. Disclosure gaps. White papers need clear rights, mechanisms and risks, must be prominent, and kept current; don’t rely on marketing copy.
   
5. Coverage excursions without immediate notification. Daily checks plus immediate FSRA notification are mandatory – script the playbook.

14) Quick checklist for your board pack

• Permissions: FSP for Issuing an FRT; Payment Services if you operate rails.
• White paper: content set, prominent disclaimers, published pre-launch, annual/material updates.
• Redemption: par, T+2, reference-fiat payouts; fee only if disclosed and cost-based.
• Reserves: Relevant Money to Client Accounts or Reserve Investments to Reserve Accounts with FSRA-approved agents; reference-fiat denomination.
• Coverage & testing: daily valuation, immediate breach notification, annual liquidity stress tests filed with FSRA.
• Assurance: monthly independent attestation; annual audit of reserves and controls.
• Priority mechanics: pro-rata claims, priority over issuer creditors when assets are outside ADGM, FSRA liquidation powers.

ADGM’s FRT regime treats a stablecoin like financial market infrastructure: issuance is its own regulated activity; payments-use requires Payment Services permission; and the programme is grounded in par redemption, fit-for-purpose reserves, legal segregation, daily coverage, and independent monthly attestations. If you build to these controls – and separate issuance from non-incidental business lines – you can launch from ADGM with a framework purpose-built for institutional-grade stability.

Disclaimer: 

This overview is not legal advice. Requirements apply cumulatively and may change. Always confirm with the latest FSMR amendments and FSRA COBS (Chapters 14, 15, 19, and 19A), your Financial Services Permission conditions, and any FSRA guidance.   

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