The UK’s markets watchdog, the Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives and exchange-traded notes (ETNs) to retail investors.
In an announcement, the FCA reveals it considers crypto derivatives and ETNs to be “ill-suited for retail consumers due to the harm they pose.” The regulator added that these products “cannot be reliably valued” by retain investors because of several factors, including the inherent nature of the underlying cryptocurrencies.
A “prevalence of market abuse and financial crime” in the secondary market, along with “extremely volatility” in cryptoasset prices and “inadequate understanding of cryptoassets by retail consumers” were also cited. To the FCA, there’s a “lack of legitimate investment need” for retail investors to invest in crypto derivatives and ETNs.
The regulator added these features would mean retail consumers might suffer harm from “sudden and unexpected losses” if they invested in these products. The FCA reiterated that firms carrying out activities in the crypto sector should be authorized by it. It added:
To address these harms, the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (ie contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.
The markets watchdog estimated retail investors will save around £53 million ($68.5 million) from the crypto derivatives and ETNs an. Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, said the ban reflects “how seriously we view the potential harm to retail consumers in these products.”
The ban is set to come into effect on January 6, 2021. UK consumers were advised to be on alert for cryptocurrency derivative investment scams, as the FCA warned that “any firm offering these services to retail consumers is likely to be a scam” after the ban comes into effect.
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