FCA prohibits the sale of crypto derivatives to retail investors


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  • According to the FCA, crypto derivatives and ETNs are ill-suited for retail consumers.
  • The regulator believes banning such products will help retail consumers save up to £53 million.
  • Per the FCA, the ban on crypto derivatives and ETNs is set to go into effect on January 6, 2021.

The Financial Conduct Authority (FCA) has banned the sale of crypto derivatives and exchange-traded notes (ETNs) that revolve around certain cryptocurrencies to retail consumers. The agency unveiled this news via a press release on October 6. In the publication, the FCA noted that it does not consider the above products suitable for retail consumers due to the risk and harm they pose.

Explaining why it considers crypto derivatives and ETNs ill-suited for retail consumers, the FCA said they lack reliable means of valuation due to the inherent nature of their underlying assets. The agency added that there is widespread market abuse and financial crime in the secondary market. Additionally, the regulator deems the high volatility of crypto a significant risk. On top of this, the FCA believes that retail consumers lack an adequate understanding of such products.

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Putting the above factors into consideration, the authority concluded that there isn’t a legitimate need for retail investors to buy into derivatives and ETNs. This is because they might suffer harm in the case of sudden and unexpected losses should they invest in such high-risk products.

A solution that could help retail consumers save up to £53 million

According to the FCA, the best way to shield retail investors against such harm is an outright ban on the products. This ban will reportedly prohibit firms operating in or from the UK from selling, marketing, and distributing CFDs, options, futures, and ETNs to retail investors. The regulator went on to estimate that this ban has the potential to prevent retail consumers from losing approximately £53 million.

Per Sheldon Mills, the interim Executive Director of Strategy and Competition at the FCA,

‘This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

He added that,

“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.’

The FCA went on to disclose that this ban will become effective starting January 6, 2021. In the meantime, the regulator advised that UK consumers should watch out for crypto derivative scams, adding that any firm that offers such products to retail investors after this ban is likely to be fraudulent.