FCA Bans Crypto Derivatives in UK From 2021

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  • The FCA has announced a ban on crypto derivatives and ETNs from January 2021
  • The move comes just days after charges were made against BitMEX founders and operators
  • Some existing platforms like eToro and Revolut will have to stop offering some services

The UK’s financial watchdog the Financial Conduct Authority (FCA) has announced that it will ban the sale of crypto-derivatives to retail consumers in the country next year. The move comes in the wake of the Commodity Futures Trading Commission (CFTC) charging the owners and operators of the BitMEX exchange with several financial crimes, and follows advice from the FCA in March that users should be “especially wary” of the unregulated BitMEX.

FCA Puts its Foot Down on Crypto CFDs

The FCA announced its ban yesterday, stating that derivatives and exchange traded notes (ETNs) relating to cryptocurrency were soon to be illegal in the country due to “the harm they pose”, with five factors in particular noted:

  • inherent nature of the underlying assets (no reliable basis for valuation)
  • prevalence of market abuse and financial crime in the secondary market (eg cyber theft)
  • extreme volatility in cryptoasset price movements
  • inadequate understanding of cryptoassets by retail consumers
  • lack of legitimate investment need for retail consumers to invest in these products

The ban, which kicks in on January 6, 2021, means that crypto companies working from or in the UK will not be allowed to offer such investment or trading platforms to British citizens. The FCA says that this covers all cryptocurrencies, from Bitcoin to the latest Uniswap meme coin, but stops short of a total ban on cryptocurrency trading, targeting only futures or other derivatives of the assets.

Popular Platforms Will Have to Change Offerings

The FCA ban will mean that even those with licenses to operate crypto exchange services in the country may find themselves having to alter their offering. Companies like Revolut and eToro offer contracts for difference (CFDs) instead of the underlying asset, and as such will no longer be able to offer these services in the UK.

The FCA opened up a crypto company registration process last year, requiring all those wanting to offer crypto trading services to UK customers to do so. The deadline for applications passed at the end of June, and any crypto-handling entities operating without a license after January 10, 2021, will be shut down, a deadline that ties in almost exactly with the new ban on derivatives.