The British financial regulator, The Financial Conduct Authority (FCA), has proposed the introduction of rules banning the sale of certain kinds of cryptocurrency derivatives and exchange-traded notes (ETNs) to UK investors. According to the FCA the move is an attempt to protect retail investors who “cannot reliably assess the value and risks of derivatives or ETNs that reference certain cryptoassets…” and save UK nationals between £75m and £234.3m a year. ETNs were banned in the U.S. shortly after launching last year.
Retail Not Welcome
The FCA lists a number of reasons why cryptocurrency products aren’t suitable for retail investors, which are:
Inherent nature of the underlying assets, which have no reliable basis for valuation
The prevalence of market abuse and financial crime in the secondary market for cryptoassets (eg cyber theft)
Extreme volatility in cryptoasset prices movements, and
Inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them
Even the most ardent crypto supporter would say that there is more than an element of truth to these accusations, but would likely counter with the argument that people should be free to do their own due diligence and invest at their own risk. The FCA is proposing “banning the sale, marketing and distribution to all retail consumers of all derivatives (i.e. contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.” Seeing as almost all cryptocurrencies are unregulated in the UK, this could be quite a blow to organizations who might have wished to set up shop in the country and could see platforms such as Bitmex and Deberit banned for UK users.
Further Clarification Coming This Year
The FCA has been undergoing something of a cryptocurrency audit this year, with a second paper due out later in the summer which will clarify what types of cryptocurrencies fall within their “current regulatory perimeter”. A consultation period of three months is necessary before the potential ban could become a reality, which would cause a huge headache for companies that already offer these facilities to UK customers.