Qatar makes belated entry into crypto tokens market

October 12, 2023

Traders at the Qatar Stock Exchange. The country's cryptocurrency legislation is expected early next year

Nation to lift crypto ban
Regulators propose framework
Investor confidence vital

Qatar’s financial regulators have proposed a new digital assets framework which seeks to regulate investment tokens.

In contrast to its Gulf neighbours like the UAE and Bahrain, which have opened their doors to global cryptocurrency exchanges, Qatar has maintained a ban on trading.

But legal insiders say Qatar’s delayed entry into the virtual assets arena might be to the kingdom’s advantage.

Nadim Bardawil, partner at law firm BSA, said Qatar stands to craft “a more comprehensive and effective regulatory framework than other countries that rushed to enter the virtual asset space”, potentially bolstering investor confidence.

Tokens, which include cryptocurrencies, are used as an alternative to fiat currencies but are not issued or backed by any governmental authority.

Bardawil said introducing a virtual asset framework positions Qatar, with a population of about 2.5 million, for a trifecta of economic boons.

The nation’s clear regulatory stance could attract foreign investors, offering a boost to employment and overall economic growth, he said.

“The introduction of this framework could help diversify Qatar’s economy, making it more resilient to industry volatility,” he added.

The influx of new investors could also drive homegrown innovation and entrepreneurship, Bardawil said.

Although Western markets continue to tread cautiously around cryptocurrencies, Gulf nations are increasingly turning to technology and the digital assets sector as a core component of their diversification strategies.

As the largest global exporter of liquefied natural gas, Qatar relies heavily on gas and petroleum products for the bulk of its revenue. Even with its Vision 2030 push for diversification, over half of the nation’s fiscal receipts stem from its hydrocarbon sector.

Curbing the crypto cowboys

The value of the global crypto market surged to roughly $2 trillion in 2021 from $100 billion three years earlier, according to CoinMarketCap.

It crashed to $800 billion in 2022 after the collapse of several cryptocurrencies and prominent exchanges including FTX, which is accused of siphoning off billions in customer funds.

Before the scandal broke, FTX had also received full approval to operate a crypto exchange in Dubai from the emirate’s Virtual Assets Regulatory Authority.

Samual Moore, paralegal at BSA, noted that Qatar’s digital assets framework is being developed “on a phased basis”.

A standout feature in the first phase, he said, is the introduction of investment tokens that represent rights in specific products.

As per the regulator, activities where underlying investments, like stocks, can be represented by investment tokens will require authorisation and be supervised.

Conversely, tokens used for unspecified activities will be prohibited.

Moore added that licensed token service providers will be subject to “know your customer” and anti-money laundering obligations, including having to appoint a money laundering risk officer.

However, the new framework does not yet include regulations involving initial coin offerings, a way for companies to sell their tokens to investors to raise money, he said.

The unveiling of Qatar’s new proposed framework also comes after allegations from a global anti-money laundering watchdog that the nation has been lenient on crypto companies flouting its 2019 crypto ban.

In a June report, the Financial Action Task Force (FATF) urged the Qatar Central Bank to be more proactive in sanctioning virtual asset service providers violating the crypto ban, accusing the country of being too lax on terrorist fundraising.

In a statement posted on its website, Qatar Central Bank said the assessment found the country was compliant or largely compliant with the FATF’s requirements, demonstrating the country’s “commitment to combating illicit financing”.

“The State of Qatar continues to improve and continuously strengthen its combatting system based on international standards,” the statement added.

The Qatar Financial Centre is seeking feedback for the proposed digital assets legislation before January 2, 2024.

The final legislation is not expected until the first or second quarter of next year.