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FCA bans sale of cryptoasset derivatives to retail investors in UK


The FCA has announced it will ban the sale of derivatives and exchange-traded notes (ETNs) that are based on “certain types” of cryptoassets to UK consumers. The regulator says that it thinks these are ill-suited for retail consumers, and that they cannot be reliably valued.

Among its concerns are the inherent nature of the underlying assets, which means they have no “reliable basis for valuation.” Other issues include the prevalence of market abuse and financial crime in the secondary market and the extreme volatility in cryptoasset price movements. The FCA is also worried that retail investors do not properly understand the market.

The FCA defines unregulated transferable cryptoassets as tokens that are not specified investments or e-money, and that can be traded. This means the ban extends to well-known and liquid cryptocurrencies like Bitcoin, Ether and Ripple.

“This ban reflects how seriously we view the potential harm to retail consumers in these products,” said Sheldon Mills, Executive Director of Strategy and Competition at the FCA. “Consumer protection is paramount here. Significant price volatility combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at high risk of suffering losses from trading crypto derivatives. We have evidence of this happening on a significant scale.”

The FCA says the ban will come into effect on 6 January 2021.

Ban will torpedo plans for further UK Bitcoin products

The ban has had a serious impact on brokers and asset managers that had planned the roll out of further investment products that are based on the prices of cryptocurrencies. The ban does not stop individuals from trading cryptocurrencies – i.e. direct market participation – but it does stop firms from offering funds or ETNs or CFDs that use cryptocurrencies as their underlying price.

Nigel Green, CEO of deVere, called the ban a “rather misguided approach to cryptocurrencies.” He said:

“This market, thanks to its exponential growth, needs a robust and enforceable regulatory framework. It needs scrutiny. The staggering pace of the digitalisation of economies and every aspect of our lives highlights that there will be a growing demand for digital, global, borderless money. Already digital currency is almost universally regarded as the future of money, and we need a joined-up approach to tackling those who undermine it.”

Green argued that the cryptocurrency tide is not going back, and that the traditional, fiat, paper currencies are not the future. He said more regulation rather than an outright ban was the answer.

Cryptocurrency scams picking up in UK

The move comes as the volume of financial scams increases across the UK in the wake of the coronavirus pandemic. Sophisticated online scams are being used to get victims to part with their money for so-called Bitcoin trading schemes. Police in North Yorkshire alone have recorded over £300,000 being lost to cryptocurrency scammers in that county, via the use of software downloads that appear to show victims that they are making profits from Bitcoin trading.

The FCA’s move means onshore UK financial spread betting and CFD trading products are going to be taken off the shelves by brokers. It also means that ETNs and Bitcoin ETFs will be restricted to professional investors like fund managers.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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