What has happend?

The UK Financial Conduct Authority (FCA) has said that firms that offer cryptocurrency derivatives must be authorised.

What does this mean?

The UK financial regulator has issued a statement, reminding businesses that provide, deal in, arrange transactions in, or advise on cryptocurrencies derivatives that they must be authorised.

The FCA said:

"We are aware of a growing number of UK firms offering so-called cryptocurrencies and cryptocurrency-related assets. As indicated in our Feedback Statement on DLT, cryptocurrencies are not currently regulated by the FCA provided they are not part of other regulated products or services."

However, cryptocurrency derivatives can be financial instruments under MiFID II, although the regulator does not consider cryptocurrencies "to be currencies or commodities for regulatory purposes under 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 statement said.

Other regulated activities that reference to either cryptocurrencies or tokens issued through an initial coin offering (ICO) are also likely to require FCA authorisation, including cryptocurrency futures, cryptocurrency contracts for difference and cryptocurrency options.

The regulator advised firms that are unsure whether they require authorisation to check its general guidance on the regulatory perimeter in PERG and to seek expert advice.

The move follows on several warnings issued by the regulator in respect of cryptocurrencies and ICOs in the past few months.

Last week, the FCA cautioned investors over an unregistered Bulgarian brokerage firm that is said to be offering cryptocurrency-related derivatives in the country.

Earlier this year, the regulator also warned of the rise of online investment fraud, including cryptocurrencies, after finding that investors lost more than £87,000 per day last year to one type of scam.

In September 2017, the FCA issued a consumer warning in respect of ICOs and a feedback statement on distributed ledger technology followed in December, which revealed that the regulator planned further scrutiny of ICOs, among other things.

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