FCA statement on cryptocurrency derivatives

FCA statement on cryptocurrency derivatives

The FCA has published a statment confirming that, while cryptocurrencies are not currently regulated, provided that they are not part of other regulated products or services and the FCA does not consider them to be currencies or commodities under the MiFID II Directive (2014/65/EU), cryptocurrency derivatives are capable of being financial instruments under the MiFID II Directive.

Therefore, those firms which conduct regulated activities in cryptocurrency derivatives fulfil the two-limbed test for FCA regulation and must comply with relevant provisions in the FCA’s Handbook and directly applicable EU regulations. This includes being FCA regulated.

The FCA goes on to explain 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 issued through an initial coin offering (ICO), will require authorisation. They add that this includes:

Cryptocurrency futures – a derivative contract in which each party agrees to exchange cryptocurrency at a future date and at a price agreed by both parties;

  • Cryptocurrency contracts for differences (CFDs) – a cash-settled derivative contract where the parties seek to secure a profit or avoid a loss by agreeing to exchange the difference in price between the value of the cryptocurrency CFD contract at its outset and at its termination; and
  • Cryptocurrency options – a contract that grants the beneficiary the right to acquire or dispose of cryptocurrencies.