News

FCA Issues Warning to Firms Offering Cryptocurrency Derivatives

0 Comments

Firms offering cryptocurrency derivatives in the UK without the authorization of the Financial Conduct authority may be committing a criminal offense. In a statement on Friday, the financial watchdog said companies offering cryptocurrency derivatives need to seek approval from the FCA. This includes derivatives from tokens issued through ICOs.

Although cryptocurrencies are not part of other products and services regulated by the FCA “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, “ the FCA said in a statement on its website.

FCA

Companies dealing with cryptocurrency derivatives are “now expected to comply with all applicable rules in the FCA’s Handbook and any relevant provisions in directly applicable European Union regulations,” the FCA says.

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 now likely require authorisation by the FCA, the statement says.

The FCA defines cryptocurrency futures as 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 or CFDs are defined as a “cash-settled derivative contract in which the parties to the contract 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.”

According to the  definition cryptocurrency options are contracts which grant the beneficiary the right to acquire or dispose of cryptocurrencies.

Firms to be Held Responsible

The FCA holds firms responsible for getting the appropriate authorisation to conduct regulated activities. Firms offering products are services without authorisation commit a criminal offense and may be subject to enforcement action, the agency says.

The FCA had previously said it did not plan to regulate cryptocurrencies because they needed the space to “grow.” The latest move marks a departure from this position.

The regulator has recently been taking more than a casual look at the sector even recently examining the applicability of UK laws to the ICO sector.

Warnings

The body has previously warned the public against the highly speculative sector and that they risked losing all their money. FCA particularly issued warnings about the risks associated with cryptocurrency contracts for differences (CFD’s) in November 2017 citing high volatility, price transparency, liquidity and funding costs.

Cryptocurrency

Customers are protected by the UK financial services regulatory framework although the protection does not include losses during trading.

The FCA regulates the conduct of over 58,000 financial services firms and financial markets in the UK. It is also the prudential regulator for about 1500 banks, insurers, credit unions, building societies, major investment firms etc.

The European Securities Markets Authority recently adjusted the leverage limit for cryptocurrency related CFDs to 2:1.

Leave a Reply

avatar
  Subscribe  
Notify of
close-link

Risk Warning: Investing in digital currencies, stocks, shares and other securities, commodities, currencies and other derivative investment products (e.g. contracts for difference (“CFDs”) is speculative and carries a high level of risk. Each investment is unique and involves unique risks.

CFDs and other derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how an investment works and whether you can afford to take the high risk of losing your money.

Cryptocurrencies can fluctuate widely in prices and are, therefore, not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Past performance does not guarantee future results. Any trading history presented is less than 5 years old unless otherwise stated and may not suffice as a basis for investment decisions. Your capital is at risk.

When trading in stocks your capital is at risk.

Past performance is not an indication of future results. Trading history presented is less than 5 years old unless otherwise stated and may not suffice as a basis for investment decisions. Prices may go down as well as up, prices can fluctuate widely, you may be exposed to currency exchange rate fluctuations and you may lose all of or more than the amount you invest. Investing is not suitable for everyone; ensure that you have fully understood the risks and legalities involved. If you are unsure, seek independent financial, legal, tax and/or accounting advice. This website does not provide investment, financial, legal, tax or accounting advice. Some links are affiliate links. For more information please read our full risk warning and disclaimer.