The UK Financial Conduct Authority is set to impose a complete ban on the sale of crypto derivatives to retail consumers. Through a publication on its site, the FCA feels the crypto related products are unsuitable for sale to retail consumers due to inherent risks.
In particular, the FCA will be banning the distribution, marketing and sale of crypto-based derivatives such as exchange-traded notes ETNs, options and futures together with CFDs.
The proposal to ban the sale of the derivatives to retail consumers comes after the FCA announced it had finalized rules restricting this.
The latter rules came out on Monday and fall on the selling of CFD like options and CFDs to retail consumers. In their Monday circular, the FCA mandated leverage limits of 2:1 on CFDs which have a reference to cryptocurrencies.
FCA proposal states retail investors can’t assess the risks that come with derivatives or ETNs linked to crypto assets. After thoroughly scrutinizing the sector, the FCA based its decision on four key factors.
The first one being that the market lacks a basis of valuation due to its nature. Also there is a high rate of market abuse coupled with financial crime in the secondary market associated with crypto assets. The FCA, in particular, cited the high prevalence of cyber theft. Last but not least, the high volatility nature of the crypto sector contributed to this proposed ban. Lastly, retail investors lack a clear understanding of the crypto assets market.
While these regulations may adversely affect the crypto sector, the FCA is simply exercising its legal mandate of protecting consumers. Furthermore, the above falls in line with its commitment to the UK Crypto asset Taskforce Final Report.
Moreover, through placing the ban, the FCA will help retail consumers save between £75 million to £234.3 million annually. While some may argue the FCA is coming out strongly in proposing the ban, it did carry out extensive consultation dubbed Guidance on Crypto assets CP19/3 before its proposal from January to April 5th.