RegulationApr 6 2018

FCA turns guns on cryptocurrency firms

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FCA turns guns on cryptocurrency firms

Businesses in the UK that provide, sell or advise on, investments in cryptocurrency derivatives are to be regulated by the Financial Conduct Authority (FCA).

A derivative is so called because the investment derives its return from that of another asset, but the investor never owns the underlying asset.

This means an investor in a cryptocurrency derivative is gaining exposure to the price movements of cryptocurrencies, without ever owning any of the tokens.

Today's announcement (6 April) includes cryptocurrency investments via contracts for difference and futures. 

The regulator said: “We are aware of a growing number of UK firms offering so-called cryptocurrencies and cryptocurrency-related assets.

"As indicated in our Feedback Statement on DLT, cryptocurrencies are not currently regulated by the FCA provided they are not part of other regulated products or services.

"Cryptocurrency derivatives are, however, capable of being financial instruments under the Markets in Financial Instruments Directive II (MIFID II), although we do not consider cryptocurrencies to be currencies or commodities for regulatory purposes under MiFID II.

"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.

"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.” 

The regulator said if firms are unsure as to whether they require authorisation, they should contact the FCA.

In September the Financial Conduct Authority raised concerns about virtual currencies such as bitcoin, saying investors should be prepared to lose all their money.

Bank of England governor Mark Carney said at the start of March that there was a need for regulation of the cryptocurrency market. He said they were failing to achieve there stated aim of providing an alternative to the money issued by central banks, but had become an outlet for speculators.  

david.thorpe@ft.com