The City watchdog has warned that firms offering financial services linked to cryptocurrency derivatives must be approved by the Financial Conduct Authority (FCA) and comply with all the rules in the regulator's handbook.
While the FCA does not currently regulate cryptocurrencies, it said crypto derivatives are capable of being financial instruments under Mifid II – though it still does not consider digital currencies to be currencies or commodities for regulatory purposes.
That means companies offering financial products based on bitcoin and other cryptocurrencies such as futures, binary options and contracts for differences, must comply with the regulator's rules as well as those of the European Union.
"It is likely that 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 require authorisation by the FCA," the regulator said in a statement.
The FCA added that it is a criminal offence for firms which are not authorised to offer such products or services.
"Authorised firms offering these products without the appropriate permission may be subject to enforcement action," it said.