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UK FCA Bans Cryptocurrency Derivatives Starting January 2021

  • The United Kingdom Financial Conduct Authority plans to ban cryptocurrency derivatives and exchange-traded notes (ETNs) to retail customers from January 6th, 2021.
  • The FCA statement described such products as “ill-suited for retail customers due to the harm they pose.” The regulator outlined that retail customers are unable to determine a reliable value because of several issues they may present: 
  1. Extreme volatility in crypto-asset price movements. 
  2. Inherent nature of the underlying assets, which means they have no reliable basis for valuation.
  3. Prevalence of market abuse and financial crime in the secondary market.
  4. Inadequate understanding of crypto-assets by retail consumers.
  5. Lack of legitimate investment need for retail consumers to invest in these products.
  • The watchdog specified that tokens such as Bitcoin, Ether, or Ripple are “unregulated transferable crypto-assets,” which makes them “unspecified investments” or e-money.
  • The FCA argued that these measures attempt to reduce the financial risks for “sudden and unexpected losses” for retail investors. As such, the regulator has put into motion the final rules for banning the sale, marketing, and distribution of any unregulated transferable derivatives and ETNs crypto-assets by firms acting in, or from, the UK. 
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  • FCA interim Executive Director of Strategy & Competition, Sheldon Mills, asserted that the ban exemplified the regulator’s approach to enhancing consumer protection. 
  • ‘Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.’ – he added.

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