UK’s Financial Conduct Authority (FCA) Issues Guidelines For Crypto Derivatives

UK’s Financial Regulator FCA has laid down the rules for crypto derivatives involving CFDs, futures, and options that now require the authorization of the agency. Failure to comply with these rules will be considered a criminal offence leading to enforcement action.

Crypto derivatives need authorization, non-compliance means criminal offence

The Financial Conduct Authority (FCA) of UK has published a statement on its official website that requires businesses that deals with cryptocurrency derivatives to have the authorization.

The activities related to cryptocurrency derivatives, whether it is trading, transaction or advising falls under the Market in Financial Instruments Directive II (MiFID II) which was introduced with the EU’s financial reforms in January 2018.

The UK’s financial regulator clarifies that though it does not regulate cryptocurrencies or consider them either currencies or commodities, they may qualify as financial instruments and hence fall within the regulatory criteria.

The FCA provides three examples of crypto derivatives viz. Crypto Contracts for differences (CFDs), crypto futures and crypto options. This means any business that deals with these types of crypto derivatives are required to follow the laws as applicable.

“Firms conducting regulated activities in cryptocurrency derivatives must, therefore, comply with all applicable rules in the FCA’s Handbook and any relevant provisions indirectly applicable European Union regulations.”

The failure to comply with these regulations will be considered a criminal offence that would lead to enforcement action:

“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.”

Also, read: New Zealand’s IRD Clears Fuss Around Taxes On Cryptocurrencies

ICOs likely to require FCA authorization as well

The UK FCA further points out 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 by the FCA.”

In the past, FCA has issued a number of warnings against cryptocurrencies and ICOs due to the speculation and high risk persistent in the market. The finance minister of Britain also declared that they would be setting up a task force to study the benefits of blockchain technology and the risks of cryptocurrencies.

CFDs are based on the crypto assets that basically track the underlying asset in order to gain high leverage returns but doesn’t own any crypto itself. Last month, ESMA also strengthened the CFD requirements citing crypto’s high price volatility the reason for concern.

Earlier this year, the European regulators AMF also provided a clarification on these derivatives after the online crypto trading platforms started offering CFDs, Forex contracts, and binary options.

After regulating the crypto derivatives, do you think UK’s regulatory authorities will move onto the cryptocurrencies itself? Share your thoughts with us!