FCA proposes to ban cryptocurrency-based derivatives

FCA proposes to ban cryptocurrency-based derivatives

The UK Financial Market Conduct Authority (FCA) is proposing regulations to address damage to retail consumers caused by the sale of derivatives and exchange-traded instruments (ETN).

FCA believes that these products are not suitable for retail consumers because they cannot reliably assess the value and risk of derivatives or ETNs, while ETNs involve certain cryptocurrency assets or cryptocurrency derivatives.

This is due to: the intrinsic nature of the underlying assets, there is no reliable basis for pricing; the ubiquitous market for cryptocurrency assets abuses markets and financial crimes (such as cyber theft); the cryptocurrency asset prices fluctuate drastically, and retail consumers are cryptocurrency assets Insufficient understanding of the lack of clear investment needs for investment products that reference cryptocurrency assets.

Regulators believe that these features mean that if retail consumers invest in these products, they may suffer sudden and unexpected losses.

Therefore, FCA is prohibiting the sale, marketing and distribution of all derivatives (ie spread contracts, options and futures) and ETN to all retail consumers, which are regulated by companies in the UK or from the UK. Transferable cryptocurrency assets.

The consultation fulfilled the FCA's commitment to explore potential bans in the UK Cryptoasset Taskforce Final Report.

They estimate that the potential benefits of banned retail products for retail consumers are reduced by between £75 million and £234.3 million per year.

Christopher Woolard, director of strategy and competition at FCA, said: “Like our work in the wider spread contract and binary options market, we will take action when we see bad products being sold to retail consumers. "These are complex contracts built on complex assets. ”

Woolard believes that "most consumers cannot reliably evaluate derivatives based on unregulated cryptocurrency assets. Prices fluctuate drastically. As we have seen globally, financial crimes in the cryptocurrency market can cause sudden and unexpected losses. Therefore, we are well aware that these derivatives and exchange-traded notes are not suitable for retail investors to invest.

The consultation was conducted after the policy statement (PS19/18) issued on July 1, 2019, which finalized the restriction on the sale of CFD and similar CFD options to retail customers. These include limiting the spread of the spread contract with reference to the cryptocurrency to 2:1.

In January 2019, the FCA also consulted on the Cryptographic Assets Guide (CP19/3) to determine which types of cryptographic assets belong to our current regulatory scope. FCA expects to release its final guidance on cryptocurrency assets later this summer and reflect feedback on this advisory opinion in our cryptocurrency derivatives proposal.

FCA also warns consumers about the risks of direct and indirect investments in cryptocurrency assets. (chain to finance)