FCA bans retail sale of crypto derivatives

The FCA considers these products "ill-suited" to retail customers due to the absence of reliable valuations and extreme price volatility

The FCA (Financial Conduct Authority) has banned the sale of cryptocurrency derivatives to retail customers. The ban itself will come into force on January 6, 2021.

The FCA considers these products "ill-suited" to retail customers for multiple reasons. These include the absence of reliable valuations, the prevalence of financial crime amidst these products, extreme price volatility, as well as a lack of understanding of cryptoassets on the part of retail customers, and the absence of legitimate reasons for retail customers to invest in these assets.

Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale, said Sheldon Mills, interim executive director of strategy & competition at the FCA.

To protect against these harms, the FCA has banned the sale, marketing and distribution of these products. The ban is relevant to all firms acting in, or from, the UK.

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

This announcement comes less than a week after the CFTC charged popular crypto derivatives exchange BitMEX with operating an unregistered trading platform and failing to implement proper AML procedures. At the same time, the DoJ filed criminal actions against the exchange’s owners Arthur Hayes, Ben Delo and Samuel Reed, and arrested its CTO.

Since the charges were announced, over £309.03 million ($400 million) worth of Bitcoin has been withdrawn from the Seychelles-based crypto exchange.

Crypto derivatives exchanges in the UK have long been opposed to the FCA taking this course. On September 23, 2019 UK-based exchange Coinshares issued a letter, which publicly opposed any decision by the FCA to ban the sale of cryptocurrency derivatives to retail customers.

In contrast, the FCA estimates that retail customers will save around £53 million ($69 million) on account of this ban.