The UK Financial Conduct Authority (FCA) has published final rules prohibiting the sale of cryptocurrency derivatives to retail investors.
These products are not suitable for retail investors due to the harm they cause, according to a statement on the UK regulator’s website. FCA believes that these products cannot be judged correctly by retail consumers for the following reasons:
Inherent properties of underlying assets that do not allow them to be reliably measured
The prevalence of market abuse and financial crimes in the secondary market, such as theft of crypto assets
Extreme volatility in crypto asset prices
Inadequate understanding of the nature of cryptoassets by retail investors
Lack of a legal need for investment in these products by retail consumers.
FCA believes retail investors could suffer sudden losses if they invest in cryptocurrency derivatives. As the agency says, unregulated transferable cryptoassets are tokens that do not represent “statutory investments” or electronic money and can be traded. FCA mentions BTC, ETH and XRP among examples of such assets.
The regulator has adopted rules prohibiting the sale, marketing and distribution to retail consumers of any cryptocurrency derivatives, including Contracts for Difference (CFDs), Options, Futures and Exchange Traded Notes (ETNs), which are tied to unregulated transferable cryptoassets by companies operating in the UK.
The FCA estimates that retail consumers will save around £ 53 million after banning access to such products. FCA Acting Executive Director of Strategy and Competition, Sheldon Mills, said:
“This ban reflects how seriously we consider the potential harm to retail investors from these products. Consumer protection is paramount. Significant price volatility, coupled with the difficulty of reliably valuing cryptoassets, puts retail investors at high risk of losing money from trading cryptocurrency derivatives. We have evidence that this is a massive problem. The ban will provide the necessary level of consumer protection ”.
The ban will come into effect on January 6, 2021. UK consumers must continue to report cryptocurrency derivatives scams to the FCA. Cryptocurrency companies are now unable to offer investment in such products to retail consumers in the UK.
In August, the FCA said it could oblige cryptocurrency firms and exchanges to provide additional reporting on possible money laundering risks.
