Business

Erik Gibbs

Financial watchdog confirms crypto derivatives’ regulatory status in UK

The UK might finally be stepping forward to recognize cryptocurrencies. I say might because the confirmation of regulatory requirements for cryptocurrency derivatives by the Financial Conduct Authority (FCA) is just a small piece of the puzzle. The FCA has no regulatory scope over cryptocurrencies, but it does have an impact on future regulations.

The latest statement from the FCA specifies that cryptocurrency derivatives, under the Markets in Financial Instruments Directive II, can be defined as financial instruments. It stipulates that firms involved in regulated derivative-based activities must comply with the FCA’s Handbook rules as well as all applicable European Union (EU) provisions. The report added that companies “dealing in, arranging transactions in, advising on or providing other services that amount to regulated activities in relation to derivatives that reference either cryptocurrencies or tokens issued through an initial coin offering (ICO), will require authorisation by the FCA.”

Some of the transaction types that could be required to conform to regulations include cryptocurrency futures, cryptocurrency contracts for differences and cryptocurrency options. The FCA handbook provides a lot of the information necessary for firms to determine if their products would need to adhere to FCA policies.
In March, the FCA launched a cryptocurrency task force with the Bank of England to explore how to regulate and control the cryptocurrency sector. It planned to release an analytical report on cryptocurrencies later this year. John van Reenen, an MIT Professor of Economics, recently said that the UK would more than likely be taking a favorable stance on cryptocurrencies; however, the latest measures seem to indicate a different story.

Several analysts have indicated that, with the positivity shown by the FCA, the UK might become an attractive hub for blockchain startups and fintech companies. As the world continues to—slowly—embrace cryptocurrencies, the FCA shows that it is trying to be one step ahead of the rest. UK authorities are being pushed to create a cryptocurrency strategy ahead of the EU. Otherwise, the UK won’t have an edge on the competition.

The FCA has rightfully seen investors’ appetite for cryptocurrency investment vehicles such as derivatives. Their proactive approach should send a clear message that the country is open to the idea, even though regulations still don’t exist, and is looking to become a leader in the cryptocurrency industry.

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