UK bans sale of crypto-derivatives to retail clients

The Financial Conduct Authority (FCA) has prohibited UK companies from selling crypto-derivatives and exchange traded notes that reference cryptoassets to retail investors. 

The watchdog believes these products could expose the client segment to harm, as cryptoassets are “ill-suited” to cater to their investment needs. 

The FCA said crypto-derivatives cannot be reliably valued by retail consumers because of the: 

  • Inherent nature of the underlying assets, which means they have no reliable basis for valuation; 
  • Prevalence of market abuse and financial crime in the secondary market – eg cyber theft; 
  • Extreme volatility in cryptoasset price movements; 
  • Inadequate understanding of cryptoassets by retail consumers; and, 
  • Lack of legitimate investment need for retail consumers to invest in these products. 

The ban will be effective from 6 January 2021. 

‘Serious potential harm’ 

The regulator defines unregulated transferable cryptoassets as “tokens that are not ‘specified investments’ or e-money, and can be traded”. 

Some of the better-known examples are Bitcoin, Ether and Ripple. 

The ban, however, doesn’t only encompass the sale of these products, as the marketing and distribution to retail clients are included in the prohibition measure. 

The FCA estimates that the regulatory action could save UK consumers around £53m ($68m, €58m). 

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.” 

The move seems to be part of regulator’s efforts in improving the investment consumer market, following the introduction of a call for input seeking industry feedback on how to best achieve better outcomes for retail consumers. 

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