FCA Affirms Regulatory Authority Over Cryptocurrency Derivatives

The UK Financial Conduct Authority ("FCA") advised market participants that firms engaging in business related to cryptocurrency derivatives must comply with applicable FCA and European Union rules.

The FCA clarified that, although it does not classify cryptocurrencies as currencies or commodities under MiFID II, activities related to derivatives referencing cryptocurrencies or initial coin offering ("ICO") tokens will require FCA authorization. Products falling under the regulatory umbrella include cryptocurrency (i) futures, (ii) contracts for difference ("CFDs"), and (iii) options.

The FCA warned that firms offering products without the requisite authorization may face enforcement action. The FCA directed interested parties to previous publications detailing (i) challenges and risks of Distributed Ledger Technology, (ii) ICO consumer risks, and (iii) risks of investing in cryptocurrency CFDs.