FCA statement on cryptocurrencies highlights where certain derivatives activities may force the need for authorisation

Bovill

On Friday 6 April, the FCA pushed out a statement clarifying their position on cryptocurrencies and cryptocurrency-related assets. 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 MIFID II, although the FCA don’t consider cryptocurrencies to be currencies or commodities for regulatory purposes under MiFID II. 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. These include:

  • 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 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
  • cryptocurrency options – a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies.

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.

As with any disruptive technology, cryptocurrency and blockchain present tremendous opportunities but also raise legal, regulatory and business challenges. If you are unsure if you need to be authorised then Bovill can help you to identify activities that may pull you into scope and support you on an end-to-end process of authorisation. Our experience in securities and commodities regulation and registration, private equity, real estate, investment funds, privacy, AML/KYC and cybersecurity make us well positioned to provide clients with a holistic approach to emerging cryptocurrency, smart contracts and distributed ledger space opportunities

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