The U.K. Financial Conduct Authority (FCA) has published a new set of rules banning the sale of crypto derivatives to retail consumers in the country. The regulator made the decision to protect consumers almost a year after first proposing the ban, explaining that cryptocurrency derivatives are “ill-suited” for retail consumers as they can pose harm.
U.K.’s top financial regulator bans retail crypto derivatives trading
The main financial regulator in the U.K. has published a landmark decision regarding the crypto industry, effectively banning the sale of derivatives and exchange-traded notes (ETNs) to retail consumers.
According to the official announcement published on FCA’s website, retail consumers can suffer harm from these products as they “cannot be reliably valued.” Without an inherent nature of the underlying asset, there’s no reliable basis for valuation which causes a slew of other problems for retail consumers, the FCA explained in the announcement.
The FCA cited the prevalence of market abuse and financial crime in the secondary market as one of the main reasons for instituting the ban. Extreme volatility in cryptocurrency price movements and inadequate understanding of cryptocurrencies were also listed as concerns that prompted the decision.
An important highlight of the FCA’s decision is the fact that the regulator sees no “legitimate investment need” for retail consumers to invest in crypto derivative products, explaining later that the harm from sudden and unexpected losses outweighs any benefits for the consumers.
The crypto derivatives industry takes a huge blow from the FCA
Sheldon Mills, the interim executive director of strategy and competition at the FCA, said that the ban reflects how seriously the U.K. sees the potential harm to retail consumers in crypto derivative products.
“Consumer protection is paramount here,” he said in the statement, adding that the FCA had evidence of consumers suffering high losses happening on a significant scale. The ban, he explained, provides an appropriate level of protection to them.
However, despite the severity of the ban, the crypto derivatives industry will have ample time to prepare for a new kind of U.K. market. The ban won’t come into effect until Jan. 6, 2021, and won’t affect cryptocurrencies themselves.
Bitcoin, ether, XRP, and other coins will be available to retail consumers in the U.K. as the FCA views them as e-money, and are therefore categorized as non-specified investments.
The ban on crypto derivatives was first proposed almost exactly a year ago, which means that the regulator took ample time to consider the decision. According to the official statement, the FCA expects this to be a positive decision long-term, estimating that retail consumers will save around £53 million, or around $68 million, from the ban on crypto derivative products.
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