UK FCA seeks to ban crypto derivatives

The UK Financial Conduct Authority (FCA) recently proposed a ban on the sale of crypto-derivatives in a bid to protect investors from sudden losses resulting from extreme volatility in the prices of cryptoassets.

In a press release dated July 03, the FCA said that it is seeking to ban derivatives and exchange-traded notes (ETNs) linked to cryptoassets.

Explaining its rationale behind the proposed ban, the regulator cited a number of factors including cryptoassets lacking a reliable basis for valuation, market abuse and financial crime, extreme volatility in cryptoasset price movements, and inadequate understanding by retail consumers.

“The FCA is therefore consulting on banning the sale, marketing and distribution to all retail consumers of all 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 press release reads.

The consultation, the regulator said, fulfils its commitment in the UK Cryptoasset Taskforce Final Report to explore a potential ban.

In the release, FCA Executive Director of Strategy & Competition, Christopher Woolard also gave his thoughts on the matter. He believes that the majority of consumers are simply too susceptible to false conclusions with regards to the value of crypto derivatives.

“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,” Woolard said.

“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.”

In May, the FCA found the reported number of crypto and foreign exchange scams to have more than tripled in the last financial year. It also launched consultation on cryptoasset guidance earlier this year, which closed on April 05.

“The FCA expects to publish its final Guidance on Cryptoassets later in the summer, and has reflected feedback to that consultation in our proposals for crypto-derivatives,” the regulator added.