1 00118601 Emerging themes 2019 A4 AW v31 combined - Page 40

The Treasury Committee branded
the crypto sector a “Wild West” that
exposed investors to a litany of risks.
Investing in cryptocurrencies: Spot the contract
for difference
Blockchain technology is best known in the guise of
cryptocurrencies such as Bitcoin, which are intended
to act as a medium of exchange. Cryptocurrencies,
as a medium of exchange, currently fall outside the
scope of UK financial regulation. Many consumers,
however, have eschewed buying actual cryptocurrencies
in favour of gaining economic exposure to them
by investing in cryptocurrency-based contracts
for difference (CFDs) on online trading platforms.
Cryptocurrency CFDs are currently regulated, as they
are a form of financial derivative, and firms offering
them in the UK need to be FCA authorised. However,
regulators across Europe have frequently expressed
concerns that cryptocurrency CFDs may not be
appropriate for the retail market. The FCA plans to
consult in the first quarter of 2019 on whether to ban
the sale of cryptocurrency CFDs to retail consumers
entirely, along with other forms of derivatives based
on cryptocurrencies.
Crypto cross words: Treasury Committee and
Cryptoasset Taskforce reports
In its September 2018 report, the Treasury Committee
criticised cryptocurrencies, citing their price volatility,
vulnerability to market manipulation, the hacking risks
associated with cryptocurrency exchanges, an absence
of consumer protection, and the potential for
cryptocurrencies to be used to facilitate financial crime.
The Treasury Committee’s call for further regulation was
taken up by a “Cryptoassets Taskforce” consisting of
HM Treasury, the FCA and the Bank of England, which
published its own report in October 2018 proposing
a path forward with respect to regulation in the UK.
To address the financial crime risks associated with
cryptocurrencies, the Taskforce confirmed that the
government will bring fiat-to-cryptocurrency exchange
firms and custodian wallet providers within the scope
of Anti-Money Laundering and Combating the Financing
of Terrorism (AML/CTF) regulation, as required by the
Fifth Money Laundering Directive (5MLD). Based on the
work of the Taskforce, the government intends to go
beyond 5MLD and to consult on applying the AML/CTF
regime to a number of additional types of entities,
including cryptocurrency-to-cryptocurrency exchange
services and P2P providers, cryptocurrency ATMs,
and non-custodian wallet providers.
The Taskforce declined to say in detail what further form
of regulation should apply to cryptocurrencies used
as a medium of exchange. Instead, the government
is expected to issue a consultation early this year to
explore the shape of any new regulation.


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