FCA bans sale of crypto-derivatives to retail consumers

The FCA has published its final rules outlining the ban of the sale of derivatives and exchange traded notes (ETNs) that reference types of cryptoassets to retail consumers.

The regulator said it considers these products to be “ill-suited” for retail consumers because of their potential harm, and estimated that retail consumers will save around £53m from their ban.

Unregulated transferable cryptoassets are tokens that are not “specified investments” or e-money and can be traded, the FCA stated, which includes tokens such as Bitcoin, Ether and Ripple. Specified investments are types of investment which are specified in legislation, and firms that carry out particular types of regulated activity in relation to those investments must be authorised by the FCA.

The ban, due to come into effect on 6 January 2021, has been brought in because the FCA suggested cryptoasset products have no reliable basis for valuation, they are prevalent to market abuse and financial crime in the secondary market, and also due to the extreme volatility in cryptoasset price movements.

The regulator suggested there is also an inadequate understanding of cryptoassets by retail consumers, and a lack of legitimate investment need for retail consumers to invest in them.

To address the harms, the FCA has created rules that ban the sale, marketing and distribution to all retail consumers of any derivatives and ETNs that reference unregulated transferable cryptoassets, by firms acting in or from the UK.

FCA interim executive director of strategy and competition, Sheldon Mills, commented: “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.

“Significant price volatility, combined with the inherent difficulties of valuing cryptoassets 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.”

Commenting on the move, AJ Bell financial analyst, Laith Khalaf, added: “The FCA has delivered a blow to the crypto world, despite almost all the respondents to its consultation opposing the proposals.

“On balance, given how new these markets are, how instinctively appealing they can be to the younger generation and the potential for fraudsters and cowboys to muscle in on the act, it’s understandable the FCA wants to play it cautiously.

“Crypto fans will no doubt point to the huge financial distortions that have occurred in bond and currency markets as a result of quantitative easing, and question why cryptocurrency is being carved out for specialist treatment.
“In time, cryptocurrencies may mature into a more mainstream asset class, but after a burst of popularity in late 2017, when the price of Bitcoin briefly flirted with the $20,000 mark – it now sits around $10,700 – crypto is facing a regulatory backlash.”

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