FCA Bans Crypto Derivatives for UK Retail Traders
The UK’s Financial Conduct Authority (FCA) has announced the final rules for a ban on the sale of cryptocurrency derivatives and exchange-traded notes (ETNs) to retail customers, which was first proposed in July 2019.
Announced today, Britain’s financial watchdog said that the ban which is expected to come into effect on January 6th, 2021, would prevent around £53 million ($69 million) a year in losses for retail customers. According to FCA, the crypto derivatives in question are “ill-suited” for retail clients.
“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,” Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, stated.
“This ban reflects how seriously we view the potential harm to retail consumers in these products. The ban provides an appropriate level of protection.”
One Year of Consideration
The FCA surprised the crypto industry last summer with its plans to ban the “sale, marketing and distribution” of crypto derivatives, including contracts for difference (CFDs).
Published in July last year, an FCA consultation paper said that “retail consumers cannot reliably assess the value and risks of derivatives and exchange traded products that reference certain cryptoassets.”
Following the proposal to ban crypto derivatives, trading platform eToro’s U.K. managing director Iqbal Gandham stated that the company has noticed a “shift in the behavior” of retail traders, and that retail investors “aren’t interested in cryptocurrency derivatives.”
“I don’t understand the premise of banning [retail crypto] derivatives,” he said at the time. Because such a blanket ban “would push trading underground and overseas, which would likely expose consumers to more risk.
With the ban on the sale of derivatives and ETNs that reference certain types of crypto assets to retail consumers, the FCA’s press release states that any company offering these services to retail consumers is to be considered a scam.