UK FCA comes close to banning cryptocurrency derivatives and ETN

The UK financial regulator plans to ban cryptocurrency-based derivatives to protect investors from financial damage.

In the press release
The Financial Supervision Authority (FCA) stated that it is consulting on a direct ban on “selling, marketing and distributing to all retail consumers” derivatives, such as contracts for difference (CFD), options and futures, as well as exchange traded bonds (ETN) associated with “unregulated transferable cryptocurrency assets” by firms operating or based in the UK.

FCA believes that such financial products are “poorly suited” for retail investors, “who cannot correctly estimate the cost and risks of derivatives or ETN tied to certain cryptocurrency assets.”

The regulator bases this judgment on various factors, including the fact that the underlying cryptocurrency assets do not have a “reliable basis for assessing”, the prevalence of “market abuse and financial crimes” in the secondary market for such assets, and “extreme” cryptocurrency volatility and a lack of understanding of the mechanisms of such tools on the part of retail investors.

FCA further claims that for financial products associated with cryptocurrency assets, there is no “clear need for investment.” The regulator notes in the press release:

“We estimate the potential gain for retail consumers of a ban on these products in the range of 75 to 234.3 million pounds per year.”

Director of Strategy and Competition at FCA Christopher Woolard also notes:

“As in the case of our work in broader CFD and binary options markets, we will take action if we see that bad products are sold to retail consumers. These are complex contracts based on complex assets. ”

FCA also announced earlier this week.
in a directive document on the completion of the development of rules restricting the sale of CFD and CFD-like options to retail customers. The rules include mandatory 2: 1 leverage restrictions for CFDs that are related to cryptocurrencies.

FCA also announced that it plans to publish its final “Guide to cryptocurrency assets” later this summer after a period during which the question of which cryptocurrency assets fall within its competence will be considered.

For the first time, FCA’s plans to ban some cryptocurrency derivatives became known last fall.