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World Federation of Exchanges urges UK FCA not to ban sale of crypto derivatives to retail investors

Mon, 14 Oct 2019, 04:29 am UTC

The World Federation of Exchanges (WFE), the global industry association for exchanges and clearing houses, has asked UK’s Financial Conduct Authority (FCA) not to ban the sale of crypto derivatives to retail investors.

In July, the FCA revealed its intention to ban derivatives and ETNs linked to cryptoassets. The objective, it said, was to protect investors from sudden losses resulting from extreme volatility in the prices of cryptoassets.

The WFE said that while it is supportive of the regulator’s desire to better protect vulnerable consumers, an outright ban, under current proposals, would “envelop regulated exchanges and CCPs who operate under stringent regulations to provide pre- and post-trade risk management standards which are designed to foster safe and efficient markets.”

Instead of the blanket ban, the association urged the FCA to consider underlying market structures, explaining that the structure of established, fully regulated exchange and CCP operators significantly diminishes the risk profile for retail investors participating in these markets.

The WFE also called for caution in applying the same measures to exchange-traded and centrally cleared derivatives as to underlying crypto asset markets, as this could create “unintended consequences.” It also recommended exploring how to mitigate excessive risk exposure for retail consumers and consider introducing ‘standards’ for such products, particularly as the crypto market is evolving and maturing.

In case, the ban is implemented, the WFE said that the regulator must review the ban so as to avoid international market fragmentation, particularly if international standard setters introduce a new global regulatory approach to the regulation of crypto assets.

“Consumer protection must be foremost when seeking to regulate new and innovative products. While crypto asset products have real potential, the market has suffered from unregulated providers distributing inappropriate products,” Nandini Sukumar, Chief Executive Officer, WFE said.

“Market infrastructures that adhere to strict regulatory requirements, embed consumer protection as part of their mandate and understand that integrity is fundamental to well-functioning markets, are best placed to deliver these products and support the developing marketplace. We ask that authorities, including the FCA, chart the right regulatory course to allow the market to flourish and benefit its consumers even as we understand that it’s a balancing act.”

Last month, CoinShares, a UK-based digital asset investment firm, urged investors to support its fight against an impending ban on crypto exchange-traded notes (ETN) to be imposed by the FCA.

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