Tuesday 6 October 2020 11:27 am

FCA bans sales of crypto-derivatives to retail consumers

The Financial Conduct Authority has announced rules banning the sale of derivatives related to certain types of crypto-assets to retail consumers.

The ban will affect the sale, marketing and distribution of any derivatives – including contracts for difference, options and futures – as well as exchange traded notes that relate to unregulated cryptoassets.

Read more: City A.M.’s guide to all things crypto

The measures, which will affect derivative trading of tokens such as Bitcoin, Ether and Ripple, will come into force on 6 January 2021.

The FCA cited the “inherent nature of the underlying assets, which means they have no reliable basis for valuation” in its reasoning.

The regulator further warned that features such as extreme volatility in the market, the prevalence of financial crime in the secondary market and “inadequate understanding of cryptoassets by retail consumers” could leave retail consumers at risk of sudden and unexpected losses.

Sheldon Mills, interim Executive Director of Strategy and Competition at the FCA, said: “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

The FCA estimate the ban will save retail consumers around £53m.

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Laith Khalaf, financial analyst at investment platform AJ Bell, described the move as a “blow to the crypto world”, despite widespread opposition to the prooposal.

“That’s perhaps to be expected, given those most likely to share their views were providers of crypto products with more than a little skin in the game.

“On balance, given how new these markets are, how instinctively appealing they can be to the younger generation and the potential for fraudsters and cowboys to muscle in on the act, it’s understandable the FCA wants to play it cautiously.

“Crypto fans will no doubt point to the huge financial distortions that have occurred in bond and currency markets as a result of quantitative easing, and question why cryptocurrency is being carved out for specialist treatment.

However, James McManus, chief investment officer at investment platform Nutmeg, said: “These crypto assets have generated a lot of media hype, but the reality is, it is very difficult for anyone to reliably assess the risks associated with them, not to mention that crypto-derivatives remain unregulated by the FCA.