In a massive blow to the cryptocurrency derivatives market, the Financial Conduct Authority [FCA] has announced that it has published the final rules to ban the sale of derivatives and exchange-traded notes [ETNs] that reference certain types of crypto-assets to retail consumers. With this, the UK-based companies will no longer be able to offer cryptocurrency derivatives products such as futures, options, and ETNs.
According to the official release, the financial regulatory body considers these products to be “ill-suited” for retail consumers and believes that these products cannot be reliably valued by retail consumers. Stating that the ban provides an appropriate level of protection to the retain users, following are some of the reasons cited in the document:
- Inherent nature of the underlying assets, which means they have no reliable basis for valuation
- prevalence of market abuse and financial crime in the secondary market [eg cyber theft]
- extreme volatility in crypto-asset price movements
- inadequate understanding of crypto-assets by retail consumers
- lack of legitimate investment need for retail consumers to invest in these products
- FCA further stated,
“Unregulated transferable crypto assets are tokens that are not ‘specified investments’ or e-money and can be traded, which includes well-known tokens such as Bitcoin, Ether, or Ripple. Specified investments are types of investment which are specified in legislation. Firms that carry out particular types of regulated activity in relation to those investments must be authorized by the FCA.”
Besides, the measure will come into force on the 6th of January, 2021. The FCA further estimates that the ban is likely to “save retail consumers nearly £53 million”.
Coinshares’ Campaign in Response to FCA’s ban in 2019
This news comes after a little over a year after U.K.-based regulated public exchange, Coinshares expressed disapproval of FCA’s proposal to ban cryptocurrency ETNs. In a letter published shortly thereafter, Coinshares addressed the FCA’s proposed ban and stated that the regulatory watchdog did not provide enough evidence to justify its action of banning crypto ETNs – and also warned its customers that they will no longer be able to trade such products if the ban is approved.