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Summary
- United Kingdom’s Cryptocurrency derivatives ban to the retail customers has come into effect from 6 January
- Now any organisation offering such services to retail customers should be considered as a scam
The UK capital market regulator Financial Conduct Authority’s decision to ban cryptocurrency derivatives has come into effect from 6 January. The FCA has effectively prohibited the sale of crypto derivatives and the exchange traded notes (ETNs) to the retail customers. The FCA decision of restricting the retail customer’s exposure towards cryptocurrency derivatives has been primarily taken due to the complexity of the assets.
The ban on crypto derivatives reflects FCA’s seriousness in adjudging the potential harm to retail clientele as customer protection is paramount for the regulator, said Sheldon Mills, interim Executive Director of Strategy & Competition, the FCA.
The ban on the sale of crypto derivatives to retail customers provides an “appropriate level of protection” as the FCA has witnessed the wrongdoings with the customers on a “significant scale”, Mills added.
Also Read | UK crypto derivatives ban: Who all will be affected?
(Image source: ©Kalkine Group 2020)
FCA’s crypto derivatives ban: 10 Key things to know
- The FCA has termed the crypto derivatives and ETNs as “ill-suited” for retail customers due to the challenges involved in identifying the real value of the underlying asset.
- According to the rules prescribed by the FCA with regard to the ban, the crypto derivatives products have “no reliable basis for valuation” due to the “inherent nature of underlying assets”.
- With the ban already coming into effect, the FCA has warned the UK retail customers to be careful of “crypto-derivative investment scams”.
- Even after a comprehensive ban on the sale of derivatives and ETNs to retail clientele, any organisation offering such services to retail customers should be considered as a scam.
- According to the estimates of the FCA, the retail consumers are expected to save around £53 million from the embargo on the sale of crypto derivatives.
- Factors including “inadequate understanding” of crypto-assets, “lack of legitimate investment need” of putting the money into crypto derivatives products, exceptionally high volatility in the price variations of crypto-assets and prevalence of “financial crime” and “market abuse” have steered the FCA to ban the sale of crypto derivatives.
- With the presence of the aforementioned features of the crypto derivatives products, the retail customers are potentially exposed to the “sudden and unexpected losses”.
- All the “unregulated transferable crypto-assets” including bitcoin, ripple or ether shouldn’t be treated as e-money or “specified investments”, FCA suggests.
- The sale, distribution and marketing of all crypto derivatives including options, futures, contract for difference (CFDs), and ETNs to the retail customers have been barred under the FCA’s crypto derivative ban.
- All the companies operating in the cryptocurrency market directly or indirectly are prohibited to continue with such offerings acting in, or from, the United Kingdom.
