FCA cracks down on cryptocurrency derivative trading

The Financial Conduct Authority (FCA) has issued a warning to all companies that are involved in trading cryptocurrency derivatives stating they have a “likely” requirement to be authorised. The FCA posted a notice on their website in early April stating that although they don’t consider that cryptocurrencies are a currency or commodity for the purposes of regulatory law, it is likely that cryptocurrency derivatives may be classed as financial instruments under the current regulations.

FCA Statement

The statement included the following paragraph: “Firms conducting regulated activities in cryptocurrency derivatives must, therefore, comply with all applicable rules in the FCA’s Handbook and any relevant provisions in directly applicable European Union regulations.”

What this means:

The derivatives highlighted as possible financial instruments under the current regulatory requirements include cryptocurrency contracts for difference (CFDs), cryptocurrency futures, and cryptocurrency options. The FCA also stated that an initial coin offering (ICO) “may or may not fall within the FCA’s regulatory purview depending on the nature of the tokens issued.”

The FCA statement ended in the following way: “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.

Positive On Crypto

The FCA has been fairly positive about blockchain technologies and doesn’t currently have any plans for regulation, however, this could be the first of many steps in providing a stricter regime for cryptocurrencies. A review of ICOs and the ICO funding model has been under way since December 2017. Furthermore, in December 2017 the head of the FCA, Andrew Bailey, warned investors in Bitcoin that they should be prepared “to lose all your money” as the associated risks are similar to gambling.

Some of the UK brokers offering cryptocurrency derivatives include IG Group, ETX Capital and eToro. These firms are already regulated by the FCA and will therefore be compliant.

This notification from the FCA follows on from the EU announcement at the end of March that it plans to clamp down on spread betting, particularly in the area of cryptocurrency spread betting which has resulted in some punters losing significant sums of money.