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Blockchain, Crypto

Crypto and blockchain update – FCA issues guidance

There have been quite a few updates regarding the regulation of crypto currencies since our last post (see here), as well as in the blockchain world in general.

Crypto currency regulation
The FCA last week issued this statement on crypto currencies. It states that while the FCA do not consider cryptos themselves to be currencies or commodities, instruments with a crypto underlying capable of being  considered  financial instruments, and therefore subject to regulation. This includes futures, CFDs and options. Those engage in services in such instruments will therefore need to consider whether they require authorisation before the services are entered into. The same would apply to Initial Coin Offerings (ICOs) and the relevant legislation.

The statement follows others from regulators int terms of derivatives, for example that of France’s AMF as reported in a previous blog post here.  In contrast, our previous blog post on the topic here reported that the judgemnets related to the CFTC had resulted in cryptos being considered to be commodities. This article  on Coindesk looks at the case where some defendants dispute this.

In late March ESMA made this announcement, adjusting the permitted leverage ratio for CFDs, including for a crypto underlying, to 2:1.

Other Blockchain uses
In the meantime, blockchain initiatives continue to advance. This article by Harriet Barlow of JDX Consulting looks at the feasibility of the use of smart contracts from a legal perspective. While there are challenges to effectively implementing a smart contract in terms of execution, the article argues that the direction of travel is to one where such contracts are prevalent, and that the industry will find solutions to make them work.

This article on The OTC Space by Bill Hodgson looks at the Fortuna initiative, which aims to support financial OTC trading using blockchain. The article looks at the way in which the platform can support back office processes, and also some of the pitfalls that may be encountered, and worries that the platform may be approaching the issue “backwards”.  For example, it will be necessary to standardise using a model such as ISDA’s Common Domain Model if success is to be achieved, amongst other things.

The Powerledger  initiative in Australia, is moving forward with an announcement of partnership with Greenwood Associates, as reported here on the Energy Matters web site. This supports peer to peer trading of renewable energy. There are many peer to peer energy initiatives in flight at present, some of which are covered by this article on the Brink News web site. The article looks at some the regulatory issues which could arise, including financial and energy regulation.

This article on the Tabb Group web site by Hirander Misra of GMEX Group, the fourth and final of a series, looks at the application of blockchain to the commodities world, in particular at the issue of physical commodities logistics.

As the use of blockchain nears reality, many pilot initiatives will likely fall by the wayside. It will be interesting to see which ones survive and out of those which fall into common use.

 

 

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.

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