FCA bans sale of crypto derivatives to UK retail investors

The Financial Conduct Authority will stop the sale of cryptocurrency derivatives to retail investors in the UK in a move they argue will save customers £53 million ($68.9 million) in losses annually

The Financial Conduct Authority (FCA) published a statement yesterday, stating it will ban the sale of cryptocurrency derivatives to retail investors in the UK on January 6 2021. According to the financial regulator, crypto derivative products are ill-suited for retail consumers and cause more harm than good.

By banning the sale of crypto derivatives to retail investors, the FCA intends to save customers £53 million ($68.9 million) in losses accrued every year. The regulator stated that the distribution, marketing and sale of cryptocurrency derivative products such as contracts for differences (CFDs), options, futures and exchange-traded notes (ETNs) by local and foreign companies operating in the UK are to be banned.

The FCA went on to highlight the risks caused by derivative products to retail investors. According to the regulator, crypto derivative products have no reliable basis for valuation, and are impacted by the extreme volatility in cryptocurrency prices. Furthermore, the FCA argues that retail investors lack an understanding of cryptoassets, so there is no legitimate need for retail consumers in the UK to invest in the crypto derivative products.

The ban will not affect the trading of cryptocurrencies such as Bitcoin and Ethereum as the FCA does not regulate them.

Banning crypto derivatives will reduce harm on retail investors

The FCA believes that banning crypto derivatives will do a lot of good for retail investors in the UK. The regulator estimates that retail investors would save £53 million ($68.9 million) in losses annually from the products’ ban.

Sheldon Mills, the FCA’s interim Executive Director of Strategy & Competition, stated that the ban shows how seriously the regulator views the potential harm to retail investors in the products. He believes that consumer protection is critical in this scenario.

He added that massive price volatility in addition to difficulties in reliably valuing crypto assets puts retail investors at a high risk of suffering losses form traded these products. “We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection,” Mills added.

The ban on cryptocurrency derivatives in the UK will come into effect on January 6, 2021. The regulator urges UK investors to stay alert and avoid crypto-derivative investment scams. As crypto derivatives and ETNs are now banned, the regulator stated that any firm offering the services to UK investors is likely to be a scam.