FCA Defines Crypto-derivatives That Are Within Scope of Existing Regs

The UK's Financial Conduct Authority has explained that regulatory authorisation is required where someone is: 

• dealing in;
• arranging transactions in;
• advising on; or 
• otherwise providing services by way of business in the UK that amount to regulated activities, 

in relation to derivatives that reference either:

• cryptocurrencies or 
• tokens issued through an initial coin offering (ICO). 

This includes:

• 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 contracts for differences (CFDs): A cash-settled derivative contract where the parties seek to secure a profit or avoid a loss by agreeing to exchange the difference in price between the value of the cryptocurrency CFD contract at its outset and at its termination;
• Cryptocurrency options: A contract that grants the beneficiary the right to acquire or dispose of cryptocurrencies.

FCA Weighs In On #InitialCoinOfferings

The Financial Conduct Authority has just published its thoughts on "initial coin offerings" (ICOs), the issue of cryptographic tokens or 'currency'. There is already a wide variety of purposes for ICOs, making them much harder to classify than your typical stock market "initial public offering" (or IPOs) with which some people seem to be equating them.  The FCA has also provided links to guidance from: 

• the U.S. Securities and Exchange Commission, 
• the Monetary Authority of Singapore, 
• the Canadian Securities Administrators, 
• the People’s Bank of China and 
• the Securities and Futures Commission of Hong Kong.

Many additional risks also arise from the fact that the nature of the 'coins' or cryptographic currency and whether there is a market for those - quite apart from the purpose for which funds are being raised and/or invested in - as well as the distributed ledger in which they and related transactions are based. We are a long way from the usual stakeholders (like regulators) understanding and engaging with the new technology, let alone standardising any kind of process for doing ICOs as 'efficiently' as IPOs or even traditional technology projects (hopefully more so!).

I have no reason to think ICOs won't necessarily become fairly commonplace in due course, but it's appropriate for the regulators to be treading cautiously at present - although they should be supportive of genuine attempts to innovate in this area and engage positively with issuers while warning investors of the risks.

Here's a helpful ICO 'tracker' from CoinDesk.