Will FCA ban retail consumer crypto derivative sale?

July 4, 2019 | AtoZ MarketsAllegedly referring to the non-reliable basis for valuation for crypto-related assets the British Financial Conduct Authority FCA proposed banning retail consumer crypto derivatives. 

FCA discussions about crypto regulations continue

The current FCA proposal follows the recent regulator’s announcement regarding rules of crypto derivatives sale to the local retailers.

Back then the British authority was considering a raft of regulatory changes for crypto firms. FCA, in its joint with Cryptoassets Taskforce report, noted that there is not a single widely agreed definition of a crypto asset and whether crypto-related activities fall within present regulations depends on their application, including :

  • crypto assets usage to facilitate regulated payment services
  • direct investment  in crypto assets
  • indirect investment through financial instruments that reference crypto assets
  • crypto assets as a capital raising tool

Will FCA ban retail consumer crypto derivative, because of their nonreliable nature? 

Unveiling its proposals for rules of the crypto derivative sale, the FCA stated it considers these products are ill-suited to retail investors.

The authority explained that crypto-assets’ consumers cannot reliably assess the value and risks of derivatives or ETNs that reference certain crypto assets (crypto-derivatives) due to the following reasons:

  • inherent nature of the crypto assets, which have no reliable basis for valuation;
  • the prevalence of market abuse and financial crime in the crypto secondary market, including phishing, cryptojacking and crypto mining malware;
  • extreme crypto asset prices fluctuations;
  • inadequate understanding by retail consumers of crypto derivatives and the lack of a clear investment need for investment products referencing them.

Due to the aforementioned reasons,  the FCA took initiative and is considering banning the sale, marketing, and distribution to all retail consumers of all crypto derivatives.

The ban will cover CFDs, options, futures, and ETNs that reference unregulated transferable crypto assets by firms acting in, or from, the UK.  

Along with lowering risk for retailers, the FCA noted, that banning crypto derivatives

will bring the potential benefit to retail consumers which could be in a range from £75 million to £234.3 million a year. 

At the moment, the British authority is in the consulting process regarding the crypto assets, and seem committed to the UK Cryptoasset Taskforce Final Report to explore a potential ban.

The consultation follows the recent FCA Policy Statement (PS19/18) published on which finalized rules restricting the sale of CFDs and CFD-like options to retail clients.

The authority expects to publish its final guidance on crypto assets later in the summer and has reflected feedback to that consultation in its proposals for crypto-derivatives.

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