Sunday, April 5, 2020

Watchdog Plans UK Ban On Crypto Derivatives

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City regulators are proposing a ban on selling investors derivatives and exchange traded notes based on cryptocurrency.

The Financial Conduct Authority believes consumers fail to understand the risks of the market.

A damning analysis fears investors face sudden and unexpected losses and argues the market should be cleared of poor products.

The FCA went on to explain:

  • No reliable basis was obvious for valuing the cryptocurrency assets that underlie the investments
  • The cryptocurrency market suffers too much fraud, theft and market manipulation
  • Cryptocurrency prices are extremely volatile
  • Investors had ‘inadequate understanding’ of the cryptocurrency market

The main cryptocurrency is Bitcoin – which accounts for around 50% of the market.

What the ban covers

The spot price has recently surged upwards as social media giant Facebook announced plans to launch an in-app cryptocurrency payment system called Libra.

The Bitcoin price was as high a $11,250 a few days ago, but has fallen back below $10,000.

The peak was almost $20,000 for a Bitcoin in December 2017. Since then, the price has trended downwards, hitting a low of just above $3,200 in April.

“The FCA is therefore consulting on banning the sale, marketing and distribution to all retail consumers of all derivatives (ie contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK,” said the regulator.

The watchdog feels a ban would save consumers between £75 million and £234 million a year.

Poor products

Christopher Woolard, Executive Director of Strategy & Competition at the FCA, said: “As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.

“Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset 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.”

The proposed ban follows an FCA crackdown on selling CFDs and binary options to consumers.

The US Securities & Exchange Commission – the regulatory equivalent of the FCA – is also considering a similar ban.

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