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UK Regulators Ban the Sale of Crypto Derivatives to Retail Consumers

2 mins
6 October 2020, 13:13 GMT+0000
Updated by Ryan Smith
6 October 2020, 13:15 GMT+0000
In Brief
  • The FCA has announced a ban on cryptocurrency derivatives for retail customers.
  • The new rule is designed to protect retail investors from harm.
  • The ban will come into effect next year, on January 6.
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The Financial Conduct Authority (FCA) has published new rules prohibiting the sale of derivatives and exchange-traded notes to retail customers in the United Kingdom.
According to a press release, the U.K. watchdog considers these products “ill-suited for retail consumers due to the harm they pose.” Further, the announcement asserted these products are not suitable for the public for multiple reasons. Per the release — they lack a reliable basis for valuation. There is a high frequency of related financial crimes. There is extreme volatility in crypto asset price movements, and retail customers lack a proper understanding of the crypto assets themselves. Cited in the release, Sheldon Mills, interim Executive Director of Strategy and Competition with the FCA, was quick to underscore harm reduction as the reason for his agency’s stance,
this ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.

Stakeholders Oppose Ban

Once in place, the ban will affect “the sale, marketing, and distribution” to retail investors of any derivatives contract or Exchange-Traded Notes (ETN) linked to “unregulated transferable crypto assets” issued by entities in or outside the U.K. When the FCA first proposed the ban in July 2019, they suggested the benefit to consumers could be anywhere from £75m to £234.3m a year. Tuesday’s (6 Oct) announcement put the figure at £53m annually. According to the FCA’s full policy publication, the regulatory body consulted over five hundred industry stakeholders in the rulemaking process. Perhaps unsurprisingly, there was strong opposition to the ban,
most respondents (97%) opposed our proposal.
The stakeholders presented several arguments against, including that crypto assets have intrinsic value, retail consumers are capable of valuing crypto assets, and that a prohibition was disproportionate and other measures could achieve regulatory objectives. The new rules are set to take effect on Jan 6, 2021.


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