UK FCA plans to ban sale of crypto-derivatives to retail investors

The UK’s Financial Conduct Authority (FCA) has proposed a ban on the sale of crypto-derivatives to retail consumers saying that the products are ill-suited.

In this regard, the FCA has proposed rules to address harm to retail consumers resulting from the sale of derivatives and exchange traded notes (ETNs) referencing some types of cryptoassets.

The financial watchdog claims that the products are not appropriate to retail consumers who cannot reliably evaluate the value and risks of derivatives or ETNs that reference some cryptoassets.

The FCA said that as the underlying assets have no reliable basis for valuation, the products are ill-suited. The regulator has also cited the market abuse and financial crime that is prevailing in the secondary market for cryptoassets as one of the reasons behind the proposed ban.

Other reasons given by the regulator for the ban are very high volatility in cryptoasset prices movements, insufficient understanding by retail consumers of cryptoassets, and the absence of a clear investment requirement for investment products referencing them.

The regulator believes that retail consumers could potentially suffer from sudden and unexpected losses if they invest in crypto-derivatives.

FCA strategy & competition executive director Christopher Woolard said: “As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.

“Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange traded notes are unsuitable investments for retail consumers.”

The FCA said that it is holding consultations on banning the sale, marketing and distribution to all retail consumers of all derivatives and ETNs that reference unregulated transferable cryptoassets by companies acting in, or from, the country.

The financial watchdog claimed that retail consumers can see a potential benefit worth £75m-£234.3m from banning of the sale of the crypto-derivatives.