UK: Watchdog Considers Ban on Crypto Derivatives

What’s going on?

The ban proposed by the UK’s regulator will cover the sale of derivatives based on digital assets — such as contracts for difference (CFD), options, and futures — to retail investors. However, this is not a done deal… yet. The FCA will launch consultations in the first quarter of 2019 to gather opinions on how to regulate cryptocurrencies and their trading infrastructures, such as crypto exchanges and crypto wallet providers. Apart from that, the watchdog wants to weigh all the pros and cons of the ban before making a decision. This means that it is still possible that the proposal will never materialize and retail investors in the UK will retain access to crypto derivatives. The FCA’s rules and requirements are applicable only to cryptocurrency derivatives, as they are classified as financial instruments. Other crypto assets are still in a no-mans-land, due to their diverse functions and use cases.

What’s the reasoning behind the decision?

The Financial Conduct Authority finds crypto derivatives too risky for unprofessional investors because their losses can easily exceed the initial deposits. In general, the regulator expressed a highly critical view of these instruments.

What does it mean for the industry?

The ban proposed by the FCA will become the first major intervention in the crypto industry that will hit primarily online brokers with crypto-based derivative instruments in their portfolios. The move is likely will become a severe blow for such UK-based operators like IG Group and Plus500 — which capitalized on a cryptocurrency boom by allowing retail customers to trade derivatives for popular digital assets. Once these instruments are outlawed, brokers will lose a source of revenues that has been generating strong revenue growth since the end of 2017. Cryptocurrency experts are hailing the FCA’s decision to consult the industry on how to proceed with the regulation. What do you think about the FSA’s decision to consult the cryptocurrency industry? Let us know your thoughts in the comments below!