On 6 April 2018, the UK Financial Conduct Authority (FCA) published a statement on its website regarding the regulatory treatment of cryptocurrencies and derivative instruments associated with them.
The FCA confirmed its stance adopted in its feedback statement published in December last year that they do not consider cryptocurrencies themselves to be currencies or commodities under MiFID II. The FCA reminded firms, however, that instruments which use the token or coin as a reference value, such as futures, CFDs, options or other derivatives, are capable of being captured as a financial instruments under MiFID II and UK legislation. As a result, activities such as dealing in, arranging transactions in or advising on such derivative instruments would require authorisation by the FCA in accordance with the existing legislative and regulatory framework.
With the increasing development of ICO space within the UK, the FCA’s confirmation that it does not consider the cryptocurrencies themselves to be currencies or commodities under MiFID II is reassuring for issuers and their advisors. However it serves as a timely reminder for firms that are considering offering products such as futures or options based on cryptocurrencies that they need to consider and comply with the existing legal and regulatory framework in respect of these instruments.
They specifically mentioned products such as cryptocurrency futures – a derivative contract in which each party agrees to exchange cryptocurrency at a future date and at a price agreed by both parties, cryptocurrency contracts for differences (CFDs) – a cash-settled derivative contract in which the parties to the contract seek to secure a profit or avoid a loss by agreeing to exchange the difference in price between the value of the cryptocurrency CFD contract at its outset and at its termination, and cryptocurrency options – a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies as being products subject to regulation in the usual way and highlighted that firms which are not appropriately authorised but offering products or services requiring authorisation are committing a criminal offence. This reinforces the “substance over form” message and the approach that existing regulations apply to cryptocurrency and derived products which need to be analysed on a case by case basis in this manner.
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