FCA bans crypto-derivatives trading to retail consumers

The Financial Conduct Authority (FCA) has banned the sale of crypto-derivatives to retail consumers, after learning of ‘significant’ trading losses, and says the move will protect around £53m

The ban will come into effect on 6 January 2021.

It applies to the sale, marketing and distribution to all retail consumers of any derivatives (ie contract for difference – CFDs, options and futures) and exchange traded notes (ETNs) that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.

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

The regulator says it considers these products to be ill-suited for retail consumers due to the harm they pose and the difficulty of achieving a reliable valuation.

This is because of the inherent nature of the underlying assets, which means they have no reliable basis for valuation; the prevalence of market abuse and financial crime in the secondary market (eg cyber theft); and the extreme volatility in cryptoasset price movements.

the FCA is also concerned about inadequate understanding of cryptoassets by retail consumers, and the lack of legitimate investment need for them to invest in these products.

These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products, and the FCA estimates the ban will produce savings of £53m in potential losses and fees.

Sheldon Mills, interim executive director of strategy & competition at the FCA, said: ‘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.’

Useful links:

PS20/10: Prohibiting the sale to retail clients of investment products that reference cryptoassets

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