UK’s Finance Watchdog FCA Proposes Retail Ban on Crypto-Based Derivatives

UK's Financial Conduct Authority vs. crypto

UK’s finance watchdog, the Financial Conduct Authority (FCA), has proposed to outlaw cryptocurrency-based derivatives. In a press release published last Wednesday, the FCA proposed a retail ban on crypto derivatives with the aim to protect investors from financial harm.

To be specific, the ban will be imposed on the sale, marketing and distribution to all retail consumers of derivatives such as CFDs, options and futures, as well as exchange-traded notes (ETNs). Especially ETNs that are linked to “unregulated transferable cryptoassets” by firms operating or based in the U.K. will also be banned. The ban, if approved, will be implemented from early 2020.

The FCA also went into the detail regarding their reasoning for taking such drastic measures, saying that the financial products under discussion are “ill-suited” to retail investors. This is because of the fact that many of the “inadequate understanding by retail consumers of cryptoassets.” Retail investors are unaware of or unable to properly assess the value and risks of these financial products, which makes them vulnerable to scams hiding behind the cover of crypto assets with the promise of magical return on investment.

Financial Crime in the Crypto Market

The FCA also said that market abuse and financial crime that is prevalent in the secondary market for crypto assets is another major reason for this proposal. The press release notes that because of all of the reasons discussed above, retail customers are constantly under the threat of harm from sudden and unexpected losses if they invest in these products.

Christopher Woolard, Executive Director of Strategy & Competition at the FCA, stated:

“As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.

Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange traded notes are unsuitable investments for retail consumers.”

It seems that the FCA is trying really hard to paint crypto-derivatives as the bad guy. The problem lies not in the product itself but the people who try to con you out of your money under the cover of some great looking investment, in this case an alleged cryptocurrency investment.

Scams have obviously existed long before these crypto products came to market. However, the FCA would have you believe that now that once they get rid of crypto-derivatives, we will no longer have to worry about getting scammed out of our money.

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