Cryptocurrencies, like Bitcoin and Ethereum, are not currently regulated by the FCA.
However, cryptocurrency derivatives are capable of being financial instruments, and therefore must comply with the Markets in Financial Instruments Directive II (Mifid II).
Mifid II and crypto
The FCA has released a statement reminding firms that provide, sell or advise on cryptocurrency derivatives that they need to meet all regulations required under Mifid II.
“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.
“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 regulator said.
The statement follows the former FCA chair John Griffiths-Jones warning about the dangers of cryptocurrency in his outgoing speech in February.
He said: “The hot topic of the day is what to do about cryptocurrencies, to which on the one hand the official sector does not wish to afford the status of a currency, but which are being advertised to the consumer as alluring investments on billboards in Canary Wharf.”
There are three main cryptocurrency derivatives identified by the FCA in its statement, these are cryptocurrency futures, cryptocurrency contracts for differences (CFDs) and cryptocurrency options.
“It is a firms’ responsibility to ensure that they have the appropriate authorisation and permission to carry on regulated activity,” the regulator said.
“If your firm is not authorised by the FCA and is offering products or services requiring authorisation it is a criminal offence.”
Authorised firms offering derivative products without the appropriate permission may also be subject to enforcement action, the watchdog said.