In a statement released 6 April 2018, the Financial Conduct Authority (FCA) of England attempted to clarify its jurisdiction in the ever-booming cryptocurrency industry. While acknowledging cryptos are “not currently” regulated by the bureau, crypto futures, contracts for difference (CFDs), options, and initial coin offerings (ICOs) do indeed fall under their purview. Furthermore, crypto firms running afoul of necessary FCA authorization are committing “a criminal offence.”
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England’s FCA Warns Crypto Firms About Unauthorized Trading
“We are aware of a growing number of UK firms offering so-called cryptocurrencies and cryptocurrency-related assets,” the FCA statement on the requirement for firms offering cryptocurrency derivatives to be authorised began. “As indicated in our Feedback Statement on [distributed ledger technology], 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,” the FCA continued, and “although we do not consider cryptocurrencies to be currencies or commodities for regulatory purposes, [firms] conducting regulated activities in cryptocurrency derivatives must […] comply with all applicable rules in the FCA’s Handbook and any relevant provisions in directly applicable European Union regulations.”
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.” That would include three principal areas: “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; [and] cryptocurrency options – a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies. Firms unsure about their status are encouraged “to seek expert advice if you have any remaining questions.”
The FCA issued a previous warning regarding crypto CFDs. It was “aimed at retail investors who may be considering or soliciting cryptocurrency CFDs (contracts for difference). The U.K. regulator emphasized the risks associated with the price volatility, charges and funding costs, leveraged trading products, and price transparency,” News.Bitcoin.com reported back in November of last year.
Times Have Changed
Just prior to that warning, however, the agency seemed to be championing crypto when it accused financial institutions of withholding financial services from distributed ledger technology (DLT) start-ups on a wholesale basis. Times have changed.
“It is firms’ responsibility,” the FCA concluded, “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.”
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