The UK’s Financial Conduct Authority (FCA) issued a statement on Wednesday proposing a ban on cryptocurrency-related investment products in a bid to protect retail investors from financial uncertainty and potential losses.
Specifically, the enactment of the proposal would see the banning of the sale, marketing, and distribution of all derivatives to UK-based retail investors- including contracts for difference, futures, and ETNs. This would severely limit the potential of citizens of the United Kingdom to gain exposure to crypto-related investment products.
Executive Director of Strategy & Competition at the FCA, Christopher Woodlard, justified the move as necessary to protect uninformed retail consumers:
“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… Most consumers cannot reliably value derivatives based on unregulated cryptoassets.”
Essentially, the FCA believes crypto-derivatives are ‘ill-suited to retail consumers’, who need to be protected from ‘harm from sudden and unexpected losses’.
There is reportedly a multitude of factors which have led the regulator to this stern judgment, including the claim that the underlying crypto assets have ‘no reliable basis for valuation’. The prevalence of ‘market abuse and financial crime’ in the secondary market for such assets is cited as another area of concern, as are the lack of understanding by retail investors and the ‘extreme’ volatility of the crypto markets. Further, the FCA states that there is no ‘clear investment need’ for financial products relating to cryptoassets.
Under the ban, consumers would avoid losses of £75m to £234m a year, according to the FCA. However, some industry figures have come forward to dismiss the logic behind the move. As reported by the Financial Times, chief executive of UK-based Kraken Futures, Timo Schlaefer, warned against an outright ban which would drive the retail market to unregulated venues that did not follow basic client protection rules.
According to Schlaefer, the most effective way to protect retail consumers is ‘to take decisive action against opaque, unregulated cryptocurrency derivative platforms that have been operating unhindered for years out of Europe and offshore’. The UK regulator clearly feels differently.
The FCA is expected to publish its final ‘Guidance on Cryptoassets’ later this summer after conducting a review into which crypto-assets fall under its scope of authority.
With the proposal coming shortly after the revelation that the Financial Action Task Force will be releasing guidelines for over 200 countries (including the UK and United States) regarding the oversight of virtual assets, the global regulatory ramp-up is presenting a challenge to adapt for many sectors of the blockchain community.
The industry has until early October to prepare for the FCA’s plans.
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