UK financial regulator the Financial Conduct Authority (FCA) has announced that, as part of an HM Treasury led Cryptoasset Taskforce, it has co-published a report on the UK’s policy and regulatory approach to cryptoassets.
Among other things (see below), the FCA said that it is looking at a full ban on crypto related CFD trading for retail clients. As of August 1, the FCA has implemented a maximum allowed leverage of 2x in trading crypto CFDs, in concert with rules proposed by EU regulator ESMA.
If implemented, the move would likely put a dent in the volumes and revenues of online brokers, some of which saw record results earlier this year driven by retail traders drawn to crypto CFDs during times of high price volatility in the underlying cryptos such as Bitcoin, Ethereum and Ripple.
The Taskforce Report has considered the policy and regulatory implications of distributed ledger technology (DLT), and cryptoassets, and at a high level set out some of the opportunities and risks they present. The FCA had previously published a Discussion Paper and Feedback Statement on DLT more broadly. The FCA has made clear that in its view cryptoassets have no intrinsic value and investors should therefore be prepared to lose all the value they have put in.
Whilst the Taskforce appreciates that cryptoassets have the potential to bring benefits to markets, firms and consumers, there remains considerable risks that the Treasury, the Bank of England and the FCA will take action to mitigate.
Key risks include: harm to consumers and market integrity, the use of cryptoassets for illicit activities and potential future threats to financial stability.
In order to mitigate these risks, the Taskforce has committed to a number of actions, including consulting on:
- Perimeter guidance by the end of 2018 to clarify which cryptoassets fall within the existing regulatory perimeter, and those cryptoassets that may fall outside;
- Whether the regulatory perimeter requires extension to capture cryptoassets that have comparable features to specified investments, but currently fall outside the perimeter;
- A separate consultation by Q1 2019 on a potential prohibition of the sale to retail consumers of derivatives (including contracts for differences, options, and futures) referencing certain types of cryptoassets;
- Given the complexity and new challenges presented to traditional forms of financial regulation, more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as Bitcoin. The government will issue a consultation in early 2019 to further explore whether and how exchange tokens, and related firms such as exchanges and wallet providers, could be regulated effectively; and
- Implementing one of the most comprehensive responses globally to the use of cryptoassets for illicit activities by applying and going further than the fifth EU Anti-Money Laundering Directive.
The authorities said that they will continue to monitor market developments and work with international counterparts to consider appropriate domestic and international responses.
The FCA-HM Treasury Cryptoassets Taskforce: final report can be seen here (pdf).