On Monday Abu Dhabi's Financial Services Regulatory Authority (FSRA) released guidelines on ICOs and virtual currencies for the first time, CNBC reports.
It said that if an ICO has the characteristics of a security, such as giving a person ownership of shares in a company, then the FSRA will regulate it, similar to a company issuing new stock.
Under the guidelines, companies wishing to execute an ICO must approach the FSRA to see whether it will fall under the body's regulation.
Companies will also have to publish a prospectus, just like a firm would for an initial public offering (IPO) on the stock market. Any market intermediaries, or secondary market operators dealing with ICOs must be approved by the FSRA.
"The ICO market is incredibly diverse in terms of quality, there are some ICOs which constitute high risk," Christopher Kiew-Smith, head of fintech strategy at the FSRA, told CNBC.
"But we are aware of and are working with some firms that want to use ICO tech to fund in a transparent fashion. We have asked firms to bring them within the regulatory framework," he added.
However, if a token issued as part of an ICO does not constitute an "offer of securities" it will remain unregulated.
The Abu Dhabi financial watchdog also said that virtual currencies are not legal tender. Instead, they are seen as "commodities" in the same vein as precious metals or fuels. Therefore, they remain unregulated.
In September China’s central bank the People’s Bank of China proclaimed initial coin offerings (ICOs) illegal and demanded all related fundraising activity to be halted immediately.
South Korea’s Financial Services Commission also took the decision to ban all forms of cryptocurrency-based money raising activity.