UK regulator wants crypto-derivatives ban to protect ‘ill-suited’ retail investors

The UK’s Financial Conduct Authority has proposed a ban on cryptocurrency-related investment products to protect retail investors.

In an announcement released earlier today, the FCA said that cryptocurrency-based derivatives and exchange traded notes (ETNs) are “ill-suited to retail consumers who cannot reliably assess the value and risks.”

“Most consumers cannot reliably value derivatives based on unregulated cryptoassets,” said Christopher Woolard, Executive Director of Strategy & Competition at the FCA.

The FCA added the ban would prohibit the “sale, marketing, and distribution” of “all derivatives,” including “contracts for difference (CFDs), options, futures, and ETNs” that relate to an unregulated transferable cryptoasset, to retail investors.

The 💜 of EU tech

The latest rumblings from the EU tech scene, a story from our wise ol' founder Boris, and some questionable AI art. It's free, every week, in your inbox. Sign up now!

According to the regulator, consumers need protection because; cryptocurrencies “have no reliable basis for valuation,” are often used to commit cybercrimes, witness “extreme volatility,” and because retail consumers lack adequate understanding of the investment tools.

“Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange traded notes are unsuitable investments for retail consumers,” Wollard added.

Earlier this year, the FCA released the results of survey which showed that most cryptocurrency investors don’t really understand what they’re buying.

Before the potential ban becomes reality, it must go through a consultation process for the next three months. The FCA expects to have an official policy statement and handbook of rules in the first quarter of next year.

If the ban goes through, it’s likely to cause quite a few headaches. Any trading app, or exchange service that offers cryptocurrency-based CFDs would be prevented from selling the product in the country.

CFDs have been deemed high-risk as customers are often allowed to leverage their positions to potentially earn, but also lose, much more than they originally invested.

The FCA estimated that banning crypto-derivatives could have a substantial financial benefit to UK consumers saving them up to £235 million ($295 million).

Indeed, regulating CFDs may protect some investors, but there’s nothing to stop investors from buying into cryptocurrency itself, which is still subject to cybercrime, loss, volatility, and theft.

Earlier this week, the FCA also published a document outlining its latest rules for any CFD – so this crackdown on crypto-derivatives comes as part of a much wider attempt to regulate CFDs and binary options.