FCA Issues Warning to Firms Offering Cryptocurrency Derivatives

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FCA Issues Warning to Firms Offering Cryptocurrency Derivatives

By Benson Toti - min read
Updated 21 March 2023

Firms offering cryptocurrency derivatives in the UK without the authorization of the Financial Conduct authority may be committing a criminal offense. In a statement on Friday, the financial watchdog said companies offering cryptocurrency derivatives need to seek approval from the FCA. This includes derivatives from tokens issued through ICOs.

Although cryptocurrencies are not part of other products and services regulated by the FCA “cryptocurrency derivatives are, however, capable of being financial instruments under the Markets in Financial Instruments Directive II (MIFID II), although we do not consider cryptocurrencies to be currencies or commodities for regulatory purposes under MiFID II, “ the FCA said in a statement on its website.


Companies dealing with cryptocurrency derivatives are “now expected to comply with all applicable rules in the FCA’s Handbook and any relevant provisions in directly applicable European Union regulations,” the FCA says.

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 now likely require authorisation by the FCA, the statement says.

The FCA defines cryptocurrency futures as 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 or CFDs are defined as 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 contract at its outset and at its termination.”

According to the  definition cryptocurrency options are contracts which grant the beneficiary the right to acquire or dispose of cryptocurrencies.

Firms to be Held Responsible

The FCA holds firms responsible for getting the appropriate authorisation to conduct regulated activities. Firms offering products are services without authorisation commit a criminal offense and may be subject to enforcement action, the agency says.

The FCA had previously said it did not plan to regulate cryptocurrencies because they needed the space to “grow.” The latest move marks a departure from this position.

The regulator has recently been taking more than a casual look at the sector even recently examining the applicability of UK laws to the ICO sector.


The body has previously warned the public against the highly speculative sector and that they risked losing all their money. FCA particularly issued warnings about the risks associated with cryptocurrency contracts for differences (CFD’s) in November 2017 citing high volatility, price transparency, liquidity and funding costs.


Customers are protected by the UK financial services regulatory framework although the protection does not include losses during trading.

The FCA regulates the conduct of over 58,000 financial services firms and financial markets in the UK. It is also the prudential regulator for about 1500 banks, insurers, credit unions, building societies, major investment firms etc.

The European Securities Markets Authority recently adjusted the leverage limit for cryptocurrency related CFDs to 2:1.