U.K. Retail Consumers Banned From Crypto Derivatives Trading

The United Kingdom’s Financial Conduct Authority (FCA) has officially prohibited the sale of crypto derivatives and Exchange Traded Notes (ETN) to retail users, the financial regulator said in a press release on 6 October.

According to the announcement, the ban on these products follows the FCA’s decision that they are “ill-suited” for retail investors, something the agency has been contemplating for more than a year now. The regulator noted that the “extreme volatility” and the lack of “reliable basis for valuation” of cryptocurrencies, plus the lack of adequate understanding and the risk of hacks, were among the reasons for the ban. The interim Executive Director of Strategy & Competition at the FCA, Sheldon Mills, said in a statement:

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

With this ban the FCA has made the “sale, marketing and distribution” of derivatives contracts and ETNs connected to “unregulated transferable cryptoassets” to retail investors illegal. To be more precise, “unregulated transferable cryptoassets” refers to any token that is not a “‘specified investments or e-money, and can be traded”.

According to the regulator’s statement, the ban will come in effect on 6 January, 2021, and is estimated to save retail investors around £53 million (around $68 million). It would not only affect crypto derivative exchanges, but crypto brokers, investment platforms and financial advisers as well. Retail investors, however, will be allowed to keep any existing holdings they have in these products, until they themselves decide to “disinvest”.

The FCA said in a separate statement:

“If your firm carries out marketing, distribution or selling activities in, or from, the UK of the relevant products to retail clients, you are required to cease these activities by 6 January 2021.”

This is the second major setback for crypto derivatives traders this month alone. At the start of the month, the U.S. Commodity Futures Trading Commission (CFTC) charged the BitMEX exchange and its CEO of providing U.S. investors with access to unregistered trading and other violations.