UK’s financial services regulator has proposed a ban on the sale of derivatives based on crypto-assets on the grounds of prevalent market abuse, Reuters reported.
According to UK’s Financial Conduct Authority (FCA), cryptocurrency-based derivatives and exchange-traded notes are ill-suited to retail consumers since they can’t reliably assess the value and risks. Therefore, the ban on crypto currency related investment is necessary to protect retail investors.
“Most consumers cannot reliably value derivatives based on unregulated crypto assets,” Christopher Woolard, Executive Director of Strategy and Competition at the FCA told the media. “Prices are extremely volatile and as we have seen globally, financial crime in crypto asset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange-traded notes are unsuitable investments for retail consumers,” Woolard added.
The FCA is prohibiting the sale, marketing as well as distribution of derivatives such as contracts-for-difference (CFD), options, and futures to retail consumers. This would help consumers to avoid losses of between £75 million and £234.3 million a year, according to the Times.
But Jake Green, a financial regulatory partner at law firm Ashurst, questions the FCA’s proposed ban. According to him, the ban will only push consumers to use unregulated platforms to trade.
For the ban to be official, it must go through a consultation process for the next three months. CFDs are the main derivative product related to crypto-assets. These products accounted for about £3.4 billion of retail customer business between August and October 2017. But when the European Union regulators imposed certain curbs, their value fell to £77 million in 2018.