2020 is being termed as the season of cryptocurrency regulations as there have been some major events over the course of the past few months. The U.K. Financial Conduct Authority (FCA) is the latest to make a move in this regard as it has now announced rules that ban the sale of cryptocurrency derivatives and exchange-traded notes to retail users.
The announcement comes more than a year after the regulator first proposed a measure of this sort.
According to the FCA, these investment products are “ill-suited” for retail customers, and the regulator has mentioned several reasons why.
The regulator states that these assets are of “inherent nature” with “no reliable basis for valuation.” There is also the added risk of financial crimes related to these assets, and there is also an “inadequate understanding of cryptoassets” among retail customers.
“Extreme volatility” of crypto assets has also been highlighted by the FCA as one of the reasons, and it also states that there is no legitimate investment need for retail consumers to invest in these products.
Based on the aforementioned reasons, the FCA believes that “Unregulated transferable cryptoassets” like “Bitcoin, Ether or Ripple” poses harm to consumers, and hence the FCA has issued rules to address these threats.
“This ban reflects how seriously we view the potential harm to retail consumers in these products,” said Sheldon Mills, interim executive director of strategy and competition at the FCA.
“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.
The ban is set to come into effect on January 6, 2021, and 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 crypto assets.
As of now, the FCA has warned UK consumers to be aware of crypto-derivatives investment scams, as “any firm offering these services to retail consumers is likely to be a scam.”
The FCA expects the ban of these products to save retail consumers around £53 million (~$68 million).