The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has published a nine-page guideline on its approach to initial coin or token offerings (ICOs) and virtual currencies under the Financial Services & Markets Regulations (FSMR).

According to the published document, a “one-size-fits-all” approach to virtual tokens is inappropriate since tokens can represent a medium of exchange such as a virtual currency, a regulated financial instrument such as a share, or a person’s identity record.

In the guideline, the authority acknowledged that ICOs represent a novel and potentially more cost-effective way of raising funds for companies and projects. However, it cautioned the public that the form and quality of transparency of ICOs varies greatly from issuance to issuance.

“Some market players wish to use ICOs to raise funds in a transparent and robust fashion, whereas others provide very limited or no information beyond a code script, and in these latter cases the risk of fraud is extremely high. Best practice standards, particularly in the unregulated space, are therefore strongly encouraged,” the document says.

The guidance seeks to address those who want to use ICOs to raise funds as well as those who are considering investing in them. The guideline states that ICOs comprising tokens that exhibit the characteristics of “specified investments” will be treated as such within the FSRA’s regulatory framework. The guidance also says that virtual currencies are treated as commodities, and advises caution to those seeking outsized investment returns due to their price volatility.

The FSRA says it is acutely aware that ICOs do not always fit neatly into existing regulatory classifications and urges market participants using ICOs to approach the authority as early as possible in their fundraising life-cycle to determine a proportionate and appropriate treatment within the regulatory regime.

“Participants exploring the issuance of ICOs that offer real value to the market and wish to operate within our regulatory framework are encouraged to engage us early to gain insights into the applicable regulatory regime,” Richard Teng, chief executive director of the FSRA, said in a statement.

Various countries have adopted different approaches to virtual currencies. The Chinese government recently issued a regulation to shut down all bitcoin exchanges in Beijing and Shanghai. Elsewhere, there are initiatives to legalise bitcoin by offering it against an asset such as gold.