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Cryptocurrencies & CFDs update

April 2018

Regulatory Focus:

This month the FCA published its Business Plan for 2018/19 in which it specified that so-called cryptocurrencies would be one of its cross-sector priorities for the coming year. In addition, just before the FCA published its Business Plan, they had published a statement on cryptocurrency derivatives and their regulatory status under MiFID II.

This follows just a month on from when ESMA, the European Securities and Markets Authority announced its decision to introduce leverage limits and other trading restrictions for firms offering Contracts for Difference (CFDs) based on cryptocurrency assets to retail clients.

Cryptocurrency derivatives

In the FCA’s recent statement, they confirm the regulator’s view that cryptocurrency derivatives are capable of being financial instruments under MiFID II and that firms conducting regulated activities in cryptocurrency derivatives will likely need to be authorised.

Amongst potential others, the FCA considers that the following cryptocurrency derivatives may constitute financial instruments within the scope of MiFID II:

 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 at its outset and at its termination; and

 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 options – a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies.

It should be noted that currently cryptocurrencies are not considered to be currencies or commodities or financial instruments under MIFID II and that activities in relation to cryptocurrencies themselves do not generally require authorisation.

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.