The ADGM Financial Services Regulatory Authority has proposed guidance setting supervisory expectations for how Authorised Persons and Recognised Bodies should identify, assess, monitor and manage risks from engaging with decentralised finance arrangements in connection with their Regulated Activities or Regulatory Functions. The guidance would apply within the existing regulatory framework rather than create separate DeFi regulated activities, digital asset categories or a protocol approval regime. Regulatory treatment would continue to depend on the substance and operation of each activity, instrument or arrangement. The proposals cover three areas: firms’ risk management arrangements, the infrastructure supporting their DeFi engagement and the resulting exposures. Firms would be expected to apply controls proportionate to the nature, scale and complexity of each engagement, with senior management oversight, due diligence, approval processes, continuous monitoring, incident escalation and clear accountability. They would also need to assess technology and third-party dependencies, including smart contracts, wallets, oracles, bridges and governance mechanisms, and ensure compliance with financial crime, sanctions, conduct, prudential and client asset obligations. For exposures such as fiat-referenced tokens, synthetic products, tokenised claims and wrapped or bridged assets, firms should determine the applicable requirements without assuming that use of DeFi changes the asset’s or activity’s underlying legal or regulatory characteristics.

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