UK Financial Watchdog Issues Statement on Crypto Derivatives Providers

  • The FCA weighed in on cryptocurrency derivatives
  • The regulator's proposed measures do not impact cryptocurrencies directly

Countries including Australia, Japan, and India, each sought an individual approach to cryptocurrencies this week. As reported, both Australia and Japan have introduced measures for controlling activity behind cryptocurrency exchanges and initial coin offerings (ICOs).

Meanwhile, the Reserve Bank of India (RBI) has turned its back on cryptocurrency-related accounts, making it hard for Indian residents to trade crypto for fiat. The UK has taken on the approach of the former this week, as the country’s Financial Conduct Authority (FCA) published new procedures, aiming to ensure a higher degree of transparency.

FCA On Cryptocurrency Derivatives

A document published on the FCA’s website on April 6 states that while cryptocurrencies aren't regulated by the FCA, companies offering services related to cryptocurrency derivates will “likely” need the agency’s authorization.

Organizations that deal with cryptocurrencies to any extent, on the other hand, are subject to regulation. This, as regulated companies that offer some crypto must have that derivative come under the broader umbrella of their legislation.

The FCA’s announcement reads:

"Firms conducting regulated activities in cryptocurrency derivatives must, therefore, comply with all applicable rules in the FCA’s Handbook and any relevant provisions indirectly applicable European Union regulations."

FCA

What's Under FCA Regulation

The FCA has specified what derivatives will be subject to regulation and authorization moving forward, as means of protecting individuals and investors compliant with their usage. These are:

  • Cryptocurrency Futures: Much like stock futures, these operate as a mutual agreement between the buyer and the seller to exchange cryptocurrencies at a future date at a set price.
  • Cryptocurrency Contracts for Differences (CFDs): A derivative contract secured in cash, CFDs allow both parties to avoid the losses which may happen due to peaks and troughs in the value of a cryptocurrency. Parties agree to pay the difference in price between the beginning and end of the CFD.
  • Cryptocurrency Options: Much like stock options, it's an agreement which allows the beneficiary to acquire or sell cryptocurrencies.

New regulations brought forward by the FCA indicate a higher level of security for those undertaking transactions in cryptocurrencies. The UK has wrangled with the legal quandary that ICOs represent for the last few years.

Going forward, any ICO launched and obtaining crowdfunding within the UK will likely require authorization and continued scrutiny by the FCA.