The FCA Proposes Prohibition on all Cryptocurrency-Related Products
Christopher Woolard, Director of Strategy and Competition for the FCA. Sean Ebsworth Barnes/innovate Finance

The United Kingdom’s Financial Conduct Authority (FCA) is proposing a ban on all cryptocurrency-related financial instruments, because such assets can lead to massive losses to retail consumers who might not understand the underlying potential risks.

The market regulator warns that crypto-linked products such as derivatives or exchange-traded notes (ETNs) are “ill-suited” for small investors. According to the FCA, the complication in valuing them and their “extreme volatility” possess a raised risk of financial crime.

FCA officials state that investors might “suffer harm from sudden and unexpected losses if they invest in these products” and banning them could save consumers an yearly amount between £75m and £234.3m.  

The bill would touch financial products like exchange traded notes, contracts for difference (CFDs) along with options and futures. FCA’s Executive Director of Strategy and Competition Christopher Woolard noted:

“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 crypto-assets. Prices are extremely volatile and as we have seen globally, financial crime in crypto-asset markets can lead to sudden and unexpected losses.”

He also added:

“It is therefore clear to us that these derivatives and exchange traded notes are unsuitable investments for retail consumers.”

Last month Woolard cautioned Facebook that their Libra cryptocurrency would warrant excessive scrutiny from regulators. In the meantime, Chris Hughes, who is one of Facebook’s Co-Founders, stated that Libra might allow involved corporations to use power over nation states.

FCA’s concerns over extreme volatility in the price of cryptocurrencies has a real example at the moment as on Tuesday, the price of Bitcoin fell below $10,000, which is down 30% from last weak’s price of almost $14,000. In fact, the announcement of Libra stimulated BTC’s price as before that, it was sold for under $6,000.

Looking into its price history, Bitcoin had some extreme highs and ups though the years, ranging between $3,000 and $20,000. At the moment, one BTC is sold for $11,565. It is exactly this instability in price that the FCA warns about and wants to take action on.

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