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Here to help with Regulation and Compliance

Compound Growth

Dear CEO: Cryptoassets & Financial Crime

25th June 2018

Continuing the Trend: Cryptocurrencies in Focus

Previously we have written about about the increasing regulatory focus upon those conducting so call ‘crypto’ currency related activities including those offering or partaking in cryptocurrency products. (See Cryptocurrency in Regulatory Focus)

Dear CEO Letter on Cryptoassets and Financial Crime

Continuing this trend, the FCA issued a ‘Dear CEO’ letter to Banks that aims to advise upon applying good practices in relation to Cryptocurrencies and Financial Crime.

Their letter, entitled ‘Cryptoassets and Financial Crime’, informs that there are “many non-criminal motives for using cryptoassets”, however the FCA goes on to advise Banks to take “reasonable and proportionate measures” to ensure that their institutions are not facilitating financial crime since cryptocurrencies can pose a higher risk as they can offer anonymity as well as easy movement between countries.

“Where you offer banking services to current or prospective clients who derive significant business activities or revenues from crypto-related activities, it may be necessary to enhance your scrutiny of these clients and their activities”

FCA, Dear CEO Letter ‘Cryptoassets and Financial Crime’ June 2018

What are cryptocurrency products?

The FCA have said that “Digital currencies are not currently regulated by the FCA” However if “the underlying reference asset in a financial derivative, transferable security or collective investment scheme” is a digital currency then “the activities of firms relating to these instruments may well be subject to regulation” (FS17/04 December 2017).

For greater clarity on cryptocurrency products, the FCA has defined these in their latest Statement

What is a cryptocurrency future?

• 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”

What is a cryptocurrency Option?

• cryptocurrency options – “a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies”

What is a cryptocurrency Contracts for Difference (CFD)?

• cryptocurrency contracts for differences (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 contract at its outset and at its termination”

Source: FCA Statement June 2018

Firms should therefore be reminded that it is their responsibility to ensure that they have the appropriate authorisation and permissions to carry on regulated activity.

Regulatory Help & Support

If you are considering the effectiveness of your current approach to so called cryptocurrencies, your regulatory requirements or have a practical compliance challenge that you would like support or advice upon, we would be delighted to hear from you. Just drop an email to our regulatory support team.

Related Reading:

• Cryptocurrency in Regulatory Focus

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