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CMA moves to regulate cryptocurrencies

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Landmark step: Capital Market regulator invites consultants to bid for contract to advise on drafting and implementation of ‘Regulatory Framework for Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs)’

The Sultanate of Oman is preparing to make a landmark foray into the trillion-dollar global crypto ecosystem, which in recent years has witnessed the explosive growth of crypto-currencies, the planned introduction of digital central bank currencies, and new digital innovations in the form of non-fungible tokens (NFTs).

Last week, the Capital Market Authority (CMA) launched a competitive tender for the selection of a consultancy firm to advise the Authority on the drafting and implementation of a ‘Regulatory Framework for Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs)’.

The goal, it noted, is to support the establishment of a legislative and regulatory framework for the regulation of Virtual Assets and the licensing, supervision and regulation of service providers.

Virtual Assets (VA) refer to the ‘digital representation of value that can be digitally traded or transferred’ either for payment or investment purposes. They include, but are not limited to, cryptocurrencies such as bitcoin or ethereum, asset-backed security tokens, other virtual currencies such as stablecoins, and related phenomena like Initial Coin Offerings (ICOs).

Virtual Asset Service Providers (VASP) refer to companies or businesses that facilitate, among other services, exchanges between virtual assets and fiat currencies, exchanges between one or more forms of virtual assets, and the transfer / safekeeping / management of virtual assets and related instruments.

Together, they represent a cryptocurrency presently estimated to be worth $3 trillion globally.

Significantly, the latest tender announcement by the capital market regulator marks an important shift from the longstanding ‘wait and see’ policy adopted by Omani authorities on matters related to the crypto-universe.

In repeated advisories to the general public, the Central Bank of Oman (CBO) has been warning that it has not licensed any agency or bank to trade in cryptocurrencies in the Sultanate of Oman.

Protections granted to investors under the Banking Law 112/2012 do not cover any digital or virtual currencies, as well as activities involving their usage, the banking sector regulator has frequently advised. But mindful of the immense global popularity of cryptocurrencies and their potential benefits as an alternative and disruptive offering to traditional banking, the apex bank announced last year that it had set up a high-level task force to study the complete gamut of issues encompassing the economic advantages — as well as risks — associated with any decision to authorise the use of cryptocurrencies in the Sultanate of Oman.

“In order to firm up our policy response (to the use of virtual assets), studies are under way

at the national level by a task force team consisting of

members of the financial sector regulators,” Tahir bin Salim al Amri, CBO Executive President had stated during a seminar last September.

“The Central Bank, through public notices, has cautioned the users, holders and traders of cryptocurrencies about the financial, operational and legal and security-related risks, besides the lack of customer protection mechanisms in this regard. It’s a new thing for all of us, and we have to make sure that everybody is protected before we engage into either regulating or allowing or even avoiding banning anything that may actually move the economy forward,” Al Amri had further noted at the time.

In formulating a comprehensive legislative framework for regulating virtual assets and related activities in the Sultanate of Oman, the CMA says it will take into consideration legislations currently adopted in key global jurisdictions before choosing “the most appropriate to be adopted and implemented”.

Additionally, the entire initiative is planned to be implemented in two phases: Phase 1 will focus efforts on drafting a suitable framework for virtual asset regulation, as well as guidelines for licensing VASPs, with the goal of underpinning the growth of the sector; Phase 2 will cover the provision of training and technical support to the CMA in the implementation of the framework.

Interested consultants have until March 23, 2022, to submit their bids for the advisory contract.

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