FCA Clarifies Stance on Cryptocurrency Offerings – Derivatives ‘Likely’ Require Authorization

· April 7, 2018 · 4:30 pm

In a statement issued on Friday by the FCA, the UK’s financial watchdog, the agency announced that all companies wishing to provide cryptocurrency derivatives would “likely” require official authorization to do so.


Friday’s announcement comes as the FCA seeks to clarify its stance when it comes to cryptocurrency derivatives. According to the official statement, all companies that offer – or wish to offer – services linked to cryptocurrency derivatives must comply with all rules in the FCA handbook as well as any “directly applicable” EU regulations.

The statement reads:

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 issued through an initial coin offering (ICO), will require authorisation by the FCA.

Products and services falling under the cryptocurrency derivatives umbrella include:

  • cryptocurrency contracts for differences (CFDs)
  • cryptocurrency futures
  • cryptocurrency options

The FCA notes that cryptocurrencies themselves are not regulated by the agency provided that they are not part of other regulated products or services. It is an important distinction, lest the ruling be misconstrued as a blanket call for regulation of all things crypto.

Which Products are Actually Regulated, Then?

While cryptocurrency derivatives – which are capable of being classified as “financial instruments” under the Markets in Financial Instruments Directive II (MIFID II) – fall under the agency’s definition of a regulated service or product, cryptocurrencies themselves do not. There is no legal framework currently in place that would allow the FCA to officially supervise the distribution of digital currencies.

This means that companies offering services that facilitate an individual’s ability to buy, sell, and trade cryptocurrencies on their own behalf would most likely not be affected by the new ruling.

The FCA also warns that ICOs “may or may not fall within the FCA’s regulatory perimeter” depending on the nature of the tokens being issued.

Despite the agency’s attempts to clarify its stance on cryptocurrencies and related products, nebulous qualifiers such as ‘likely’ and ‘may or may not’ leave a lot of room for uncertainty. Because of this, the FCA recommends that businesses seek expert advice if they are at all unsure whether or not they require authorization under the new ruling.

The statement is crystal clear on one salient point, however:

It is firms’ responsibility to ensure that they have the appropriate authorisation and permission to carry on regulated activity. If your firm is not authorised by the FCA and is offering products or services requiring authorisation it is a criminal offence. Authorised firms offering these products without the appropriate permission may be subject to enforcement action.

Do you think that the FCA’s announcement clarifies its stance on cryptocurrencies or does it muddy the waters even further? How will it affect market activity? Let us know in the comments below.


Images courtesy of Chris Ratcliffe/Bloomberg, AdobeStock

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