FCA Publishes Statement on Cryptocurrency Derivatives

The UK Financial Conduct Authority (FCA) recently published a statement¹ on the requirement for firms offering cryptocurrency derivatives to be authorised. 

The FCA reiterated that cryptocurrencies themselves are not currently regulated by them, provided that they are not part of other regulated products or services. However, the FCA confirmed that cryptocurrency derivatives (examples provided in the FCA statement being cryptocurrency futures, cryptocurrency contracts for differences (CFDs) and cryptocurrency options) are capable of comprising “financial instruments” for the purposes of the Markets in Financial Instruments Directive (MiFID II). The statement clarifies that the FCA does not consider cryptocurrencies to be currencies or commodities for MiFID II purposes. 

As a result of this confirmation, firms conducting activities in such cryptocurrency derivatives must comply with all applicable FCA Handbook rules and relevant directly applicable European Union regulations. 

Furthermore, the statement confirms that it is likely that dealing in, arranging transactions in, advising on or providing other services that amount to regulated activities in relation to derivatives that reference either cryptocurrencies or tokens offered through an initial coin offering (ICO) will require FCA authorisation. 

Highlighting the increasing scrutiny and strengthened stance taken by regulators recently, the statement ends with a reminder that it is firms’ responsibility to ensure appropriate authorisation and permissions in relation to regulated activities and that the consequences of failing to comply include criminal liability and enforcement action. 

Further FCA announcements can be expected. See also the FCA April 2017 Feedback Statement on the FCA DLT Discussion Paper.² The FCA statement also includes links to the FCA warnings on ICOs and on the risks of investing in cryptocurrency CFDs. 

Footnotes 

_{1) FCA statement on the requirement for firms offering cryptocurrency derivatives to be authorised.
2) FS17/4: Distributed ledger technology.}