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UK’s FCA bans cryptocurrency derivative products for retail investors

The U.K.'s FCA has issued a ban on cryptocurrency derivatives such as futures, options, and ETNs for retail investors.

Image by David Mark from Pixabay

Wed, 07 Oct 2020, 10:10 am UTC

Cryptocurrency derivative products will no longer be offered to UK retail investors starting next year. After a year-long deliberation, the country’s financial regulator decided that crypto derivatives such as exchange-traded notes (ETNs), futures, and options are “ill-suited for retail consumers due to the harm they pose.”

U.K.’s Financial Conduct Authority issued the decision to ban crypto derivatives to retail consumers on Tuesday, October 6, Cointelegraph reported. The decision arrived almost exactly one year since the FCA first proposed banning the crypto products.

“The FCA considers these products to be ill-suited for retail consumers due to the harm they pose,” the FCA wrote on its website. The regulator also said that “these products cannot be reliably valued by retail consumers,” which could be risky for these investors.

“These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products,” the FCA added. Based on its estimates, the ban will save around £53m or $69 million in potential losses.

The regulator also enumerated a few factors why crypto derivatives cannot be reliably valued. These include extreme volatility in cryptoasset price movements, retail consumers’ inadequate understanding of cryptocurrency, market abuse and financial crime such as cyber theft, and the inherent nature of these assets being purely digital in nature.

FCA deemed it necessary to impose a ban on these products to protect retail investors. “To address these harms, the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (ie contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK,” the regulator explained.

FCA announced that the ban will take into effect on January 6, 2021. However, the regulator also warned the public against companies offering derivatives and ETNs as “any firm offering these services to retail consumers is likely to be a scam.”

Understandably, not everyone is happy with the ban. “We see the FCA ban as further evidence of the U.K. turning its back on innovation in digital assets and on regulatory coordination with other jurisdictions,” the executive of Coinshares, a U.K.- based exchange offering a variety of crypto derivatives, told news.Bitcoin.com. “We find it difficult to see how the U.K. can be seen as welcoming of digital asset innovation when it is the only Western jurisdiction to ban them based on an erroneous belief that they have ‘no intrinsic value’.”

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