Cryptocurrency derivatives and FCA regulation: key points to note

Cryptocurrency derivatives and FCA regulation: key points to note

In April 2018, the FCA issued a statement that detailed the requirement for firms offering cryptocurrencies to be authorised.  This was in response to the increasing number of UK firms identified to be offering “so-called cryptocurrencies and cryptocurrency-related assets”.

While cryptocurrencies themselves are not currently regulated by the FCA (as long as they are not part of other regulated products or services), cryptocurrency derivatives are classed as financial instruments under the Markets in Financial Instruments Directive II (MIFID II).  These include:

  • cryptocurrency futures, which involve an agreement to exchange cryptocurrency at a set price on a future date.
  • cryptocurrency contracts for differences (CFD), an arrangement in which parties agree to an exchange of cryptocurrency where the value exchanged is determined by the difference in price of the assets at the termination of the contract compared to the outset.
  • cryptocurrency options, a contract which grants the recipient the right to obtain or dispose of cryptocurrencies.

Although cryptocurrencies are not considered to be currencies or commodities for regulatory purposes under MIFID II, there is still a requirement for firms offering financial products based on Bitcoin and other cryptocurrency derivatives to act in accordance with the applicable FCA rules, as set out in the regulator’s handbook.

Firms must also comply with “any relevant provisions in directly applicable European Union regulations”.

In short, dealing in, arranging transactions in, advising on or providing other services that amount to regulated activities will require authorisation by the FCA.

Individual firms are responsible for ensuring that they have the correct authorisation to undertake regulated activities, and it should be underlined that unauthorised firms that offer such products or services are committing a criminal offence.

Moreover, authorised firms offering such products or services without appropriate permission “may be subject to enforcement action”.

The full statement issued by the FCA includes a range of useful links for further information and advice, advising that expert guidance should be sought for relevant cases.

If you have any specific questions that relate to cryptocurrency derivatives, or are unsure if your firm requires authorisation, please get in contact with a member of our specialist team at Rickard Luckin.


Dean Osborne

Audit and Accounts Senior