FCA bans crypto derivatives sale to retail consumers

The UK Financial Conduct Authority issued a ban of the sale of derivatives and exchange traded notes (ETNs) that reference certain types of cryptoassets to retail consumers.

The UK regulator stated:

The FCA considers these products to be ill-suited for retail consumers due to the harm they pose.

The FCA believes that these products cannot be reliably valued by retail consumers because of a number of reasons including the inherent nature of the underlying assets, which means they have no reliable basis for valuation, prevalence of market abuse and financial crime in the secondary market, extreme volatility in cryptoasset price movements, inadequate understanding of cryptoassets by retail consumers, as well as lack of legitimate investment need for retail consumers to invest in these products.

The Authority stated that retail consumers might suffer from sudden and unexpected losses if they invest in these products.

FCA bans sale of crypto-derivatives to retail consumers

The FCA said:

Unregulated transferable cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether or Ripple. Specified investments are types of investment which are specified in legislation. Firms that carry out particular types of regulated activity in relation to those investments must be authorised by the FCA.

In order to address these harms, the FCA published final rules banning the sale, marketing and distribution to retail consumers of derivatives (CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.

The UK regulator has estimated that this will save the retail consumers around £53m because of the ban on these products.

Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, commented:

Sheldon Mills, FCA

Sheldon Mills

This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.

Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.

The ban will take effect on 6 January 2021.

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