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FCA proposes ban on sale of crypto-derivatives to retail consumers

The UK’s Financial Conduct Authority (FCA) is proposing rules to address harm to retail consumers from the sale of derivatives and exchange traded notes (ETNs) referencing certain types of cryptoassets.

The FCA considers these products are ill-suited to retail consumers who cannot reliably assess the value and risks of derivatives or ETNs that reference certain cryptoassets (crypto-derivatives). This is due to:

  • 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 price movements, and
  • inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them

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.

This consultation fulfils the FCA’s commitment in the UK Cryptoasset Taskforce Final Report to explore a potential ban.

FCA Executive Director of Strategy & Competition Christopher Woolard said: “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.”

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