UK Financial Watchdog Lays Down the Law for Crypto Derivatives

Britain’s FCA issued a statement warning that companies dealing with crypto derivatives products will be required to adhere to all relevant rules and may require permission from the financial regulator.

The United Kingdom’s financial regulator, the Financial Conduct Authority (FCA), has warned firms dealing with cryptocurrency derivatives that they must comply with all applicable laws, and are likely to require authorisation.

In a statement published on their official website today, the FCA clarified that while it does not regulate cryptocurrencies or consider them currencies or commodities, cryptocurrency derivatives may qualify as financial instruments under the Markets in Financial Instruments Directive II (MIFID II).

Thus, all companies dealing with crypto derivatives – including cryptocurrency futures, cryptocurrency contracts for differences, and cryptocurrency options – are required to adhere to all applicable laws:

“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.”

Failure to do so will classify as a criminal offence, and be met with appropriate enforcement action.

In addition, the FCA also pointed 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”.

The statement emphasized that obtaining the appropriate authorisation and permission was the responsibility of the firms. It also urged companies dealing with crypto derivatives to peruse the FCA’s general guidance on the regulatory perimeter or seek expert advice if further confusions/ambiguities exist.

The FCA has also issued a number of cryptocurrency-related warnings in the past, urging investors to be wary of initial coin offerings, owing to the high level of risk and speculation involved. Earlier this year, Britain’s finance minister also announced that they would be setting up a task force to monitor the risks associated with cryptocurrencies and study the possible benefits and applications of blockchain technology.