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.

Peer-to-Peer Bitcoin Exchange LocalBitcoins Halts Services in Iran

LocalBitcoins, a Helsinki-based peer-to-peer cryptocurrency exchanges, has recently stopped offering its services in Iran, presumably over U.S.-led sanctions that pressured other exchanges into withdrawing their services from the country.

According to CoinDesk, various LocalBitcoins users started noticing they were having problems posting new trades and updating previous ones, before the firm’s website started showing a message in Iran’s country page stating “LocalBitcoins is currently not available in your selected region.”

A response from the peer-to-peer exchange given to an Iranian user soon started circulating on social media. It saw LocalBitcoins state:

If you have an account already, you will be able to withdraw your bitcoins, but you will not be able to use the platform for trading.

Later on, the exchange replied to several Iranian users on Twitter, stating that its services weren’t available in the country for “risk-based reasons.” The move came as a surprise, as available data shows LocalBitcoins was seeing its trading volume in Iran surge.

According to some the exchange allowed users to trade using their local bank accounts, without the need for an international credit card. As covered, sanctions have seen Iran be get banned from using the SWIFT system.

In response the country ended up launching a gold-backed cryptocurrency called “PayMon” that is based on the Stellar Lumens (XLM) network. The cryptocurrency seemingly hasn’t been mentioned since reports revealed a company called Ghoghnoos and four national banks were cooperating with authorities to produce a system for it.

Currently, Iranian users can withdraw their bitcoins from the website, but are unable to create any new trades. The move sees LocalBitcoins join a number of cryptocurrency exchanges that have withdrawn their services from the country, including Binance, Bittrex, and ShapeShift.

Nevertheless, alternatives exist. These include decentralized exchanges that allow users to trade cryptocurrencies directly from their wallets. While U.S.-led sanctions can pressure exchanges into blocking Iranian users, truly decentralized platforms won’t discriminate based on nationality.

It’s worth noting that earlier this year LocalBitcoins revealed it was working with local regulatory authorities to implement new anti-money laundering (AML) regulations to comply with local standards. In January, the exchange was breached as a hacker managed to steal $28,000 worth of crypto phishing its users.