Retail consumers face proposed ban on sale of crypto-derivatives

The Financial Conduct Authority (FCA) announced on 03 July about proposing rules to protect retail consumers from the sale of derivatives with reference to certain crypto assets.

FCA conveyed that the sale of derivatives and exchange-traded notes (ETNs) would be the assets under scrutiny. FCA added that these products were ill-suited to retail consumers. The regulatory body added that retail consumers would not be able to efficiently assess the value of derivatives or ETNs that fall under crypto-derivatives. The FCA quoted certain inherent reasons that would make such cases prevalent.

FCA elaborated on some qualities that elevate the risk for retail consumers. The regulatory body informed that the underlying asset could have no reliable basis for valuation. FCA emphasized on the growing cases of market abuse and financial crime that would add to the risk. FCA also threw light on the extreme volatility of the crypto market that could pave the inconvenience for retailers. Finally, the FCA conveyed on the lack of thorough understanding.

FCA summarized the broad reasons by stating in simple terms that retail consumers could suffer unexpected losses if they invest in these products. In a bid to tackle the problem, the FCA is considering the ban on sales, marketing, and distribution to all retail consumers. Such assets include a contract for difference (CFD), options, futures, and ETNs. Such an inhibition would be applicable to firms that reference unregulated crypto assets acting in the UK.

FCA added that these products were ill-suited to retail consumers.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA expressed – 

“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.”

In March, there were reports of the FCA closely studying consumer attitudes to crypto assets. FCA submitted a press release that summarized the country’s consumer take towards crypto assets. The press release headlines that the FCA had published two pieces of research that examine the citizen’s view of cryptocurrencies like Bitcoin and Ether. 

FCA indicated that its current stance on the ban fulfills its commitment in the UK Cryptoasset Taskforce Final Report. The regulatory body shared a number quoting an estimated 75 to 234.3 million GBP could be the potential benefit to retail consumers from banning these products.