FCA to ban the sale of crypto-derivatives to retail customers
The Financial Conduct Authority (FCA) is banning the sale of crypto-based derivatives and exchange-traded notes (ETN) to retail customers.
The FCA considers these products “ill-suited for retail consumers due to the harm they pose”.
It cites an inadequate understanding of crypto-assets by retail consumers, as well as the inherent volatility in prices, as primary reasons for its ban.
It also mentions cryptocurrency’s “prevalence of market abuse and financial crime”. The FCA also believes there is a lack of “legitimate investment need” for retail customers.
The FCA first proposed a ban on crypto-derivatives in July 2019. It estimates that a ban could result in a benefit to customers between £75 million and £234 million.
The ban will come into effect on 6 January 2021. The FCA says consumers should “continue to be alert for crypto-derivative investment scams” in the meantime.
“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here,” says Sheldon Mills, interim executive director of strategy and competition at the FCA.
“Significant price volatility, combined with the inherent difficulties of valuing crypto-assets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives.
“We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”
The FCA promised clarity on its role in regulation cryptocurrency and digital asserts in August 2019.
Christopher Woolard, outgoing interim chief executive, called the sector a “small, complex, and evolving market”.
Jake Green, global co-head of financial regulation at law firm Ashurst, says the news is “a huge shock to the market.”
“Many will think it is not necessary. There are already material leverage restrictions related to this form of trading and this appears quite ‘nanny state’.”
Green adds: “On the flip side, it is a clear sign that the FCA does not want retail clients having access to products where transparency standards are somewhat subjective.”
Danny Scott, CEO of CoinCorner, says it is important people are aware the ban is on derivative products and not on the cryptocurrencies themselves.
“[The FCA is] comfortable with these assets and seemingly has a pro stance, they’re just not comfortable with companies packaging them up in traditional trader focused products.”