Since their creation, cryptocurrencies have been somewhat of an enigma. Decentralised digital currencies such as Bitcoin have remained unregulated, despite becoming more prevalent in our day-to-day lives. That could be about to change with the FCA announcing plans to include them as part of their other regulated products or services.
Five years ago you would be forgiven for never having heard of cryptocurrencies. In fact it was only in 2009 that Bitcoin, the first (and arguably most well-known virtual currency) was released. However in recent years, as their use has been increasing exponentially, not to mention their value, they have become more of a household name.
Regulation of cryptocurrencies in the UK however has not grown at such a fast pace. Indeed the UK regulators have been noticeably silent when it comes to defining or regulating cryptocurrencies, with the FCA only warning in September 2017 that investors should be prepared to lose all of their money if they invest in virtual currencies. Whilst HMRC has provided guidance about how Bitcoins should be taxed, the FCA has not offered such guidance about regulation. This might be about to change. The FCA noted in its Business Plan earlier this month that it intends to release a discussion paper later in 2018 setting out its proposed guidelines on cryptocurrencies.
The FCA has announced that cryptocurrencies are capable of being financial instruments under the Markets in Financial Instruments Directive II (MIFID II); however it is keen to stress that they do not consider such currencies to be classified as currencies or commodities for regulatory purposes under MIFID II. Nevertheless, the FCA has recently noted that, "some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex".
Whilst cryptocurrencies remain unregulated (and currently outside of the regulatory scope of the FCA), this announcement should provide impetus for future regulation.
Financial professionals should tread carefully when offering advice surrounding cryptocurrencies and should remain cautious. For example, towards the end of last year the FCA published a consumer warning reminder that the FCA regulates Contracts For Differences (CFDs) which means that any firms offering CFDs in the trading of cryptocurrencies must be authorised and supervised by the FCA.
With the FCA now taking a more focused approach and the announcement in February that the Treasury Committee has launched an enquiry, the end of unregulated cryptocurrencies may be in sight.