On Tuesday, the FCA announced a ban on the sale of cryptocurrency derivatives (i.e. contract for difference - CFDs, options, futures, and spread-bets) and ETNs for retail traders.
The ban follows concerns about the suitability of these products for retail consumers and was initially proposed by the FCA in July 2019.
As FCA states, these products cannot be reliably valued by retail consumers because of the:
- inherent nature of the underlying assets, which means they have no reliable basis for valuation
- prevalence of market abuse and financial crime in the secondary market (e.g. cyber theft)
- extreme volatility in cryptoasset price movements
- inadequate understanding of cryptoassets by retail consumers
- lack of legitimate investment need for retail consumers to invest in these products
In a move to protect consumers, this means that retail brokers can no longer sell certain crypto-derivatives to their retail clients. However, given the size of the market, this ban might lead some traders to simply shift trading of these instruments to less protected markets - ultimately increasing the risk for the end consumer.
The new rules will affect 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.
"This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here," said Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA.
Coming into effect on 6 January 2021, the ban breaks away from the previously coordinated retail investor rules with ESMA as EU-UK license passporting comes to an end. The FCA estimates that retail customers could save around £53M from the new rules and warns that UK consumers should continue to be alert for crypto-derivative investment scams.
Read FCA's Announcement
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