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FCA Prohibits Cryptoasset Derivatives and Exchange Traded Notes

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FCA Prohibits Cryptoasset Derivatives and Exchange Traded Notes

21 October 2020

21/10/2020
Technology & eCommerce Regulation in the Spotlight

The UK Financial Conduct Authority (“FCA”) recently announced that it would prohibit the marketing, distribution and sale of cryptoasset derivatives and cryptoasset exchange traded notes (“ETNs“) to retail clients, in or from the UK. The prohibition will enter into force on 6 January 2021.

The FCA clarified, that the aforementioned prohibited marketing includes communicating or approving financial promotions, and the prohibited distribution also includes dealing and sale. These actions would be prohibited in respect of crypto-based derivatives, which include futures, CFDs and options, as well as ETNs.

The prohibition would apply to UK-based firms (regardless of whether or not the retail clients are in the UK), as well as to non-UK firms when dealing with UK retail customers. The rules will also apply to the conduct of inward-passporting EEA firms operating under the temporary permissions regime.

This ban applies to such derivatives and ETNs referencing “unregulated transferable cryptoassets” (namely transferable exchange and utility tokens). It does not cover derivatives and ETNs referencing:

  • security tokens;
  • tokens that are not widely transferable (e.g., tokens used on a private network that can only be redeemed with the issuer);
  • e-money tokens (fiat currency-pegged stablecoins);
  • crypto-commodities (where ownership over actual commodities is recorded on the blockchain); and
  • currencies issued or guaranteed by a central bank or public authority.

The FCA’s supervision will focus on attempts to avoid the effect of the new rules by inappropriately “opting up” retail clients to become elective professional clients; or moving retail clients to associated non-UK entities.

Feel free to contact us with any further question or comments regarding the update and subjects detailed above.

 

Kind regards,

Ariel Yosefi, Partner

Head of Technology & eCommerce Regulation

Herzog Fox & Neeman

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