UK Financial Conduct Authority Issues Warning On Crypto Derivatives

The UK Financial Conduct Authority (FCA) has issued a statement reminding firms that cryptocurrency derivatives are considered financial instruments which fall squarely under the control of the agency.

In a statement on Friday, the FCA said that cryptocurrencies are not currently regulated by the agency provided they are not part of other regulated products or services. But it believes that cryptocurrency derivatives are capable of being financial instruments under the Markets in Financial Instruments Directive II (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,” the FCA said. “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 authorization by the FCA.”

The regulator said that it is the firms’s responsibility to “ensure that they have the appropriate authorization and permission to carry on regulated activity.” It is a criminal offense if the agenct has not authorized the firm and they continue operations, continuing to offer products or services about derivatives that reference cryptocurrencies. Authorized firms offering these products without the appropriate permission may be subject to enforcement action.

The FCA’s statement comes amid growing concerns about the increasing number of businesses offering crypto-related products to consumers. Late last month, the FCA warned that a firm called Olsson Capital, which operates as a contracts for difference (CFD), forex, and crypto brokerage, was not authorized by the agency and is targeting investors in the UK. Olsson Capital was said to offer products tethered to a number of cryptocurrencies, including bitcoin, Dash, ethereum and Litecoin.

Other European regulators have also addressed the cryptocurrency markets recently. The European Securities and Markets Authority (ESMA), EU’s financial regulatory institution and European supervisory authority, announced its decision last month to temporarily adjust the leverage limit for crypto-related CFDs products to 2:1. The move means that investors must have enough funds to cover at least half of a contract value upon opening. The initial leverage limit for crypto-related CFD stood at 5:1, which allowed investors to enter the deal with only 20 percent of the CFD’s value on hand.

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