UK’s Financial Conduct Authority plans to outlaw crypto-linked derivatives and ETNs

  • 03 July 2019, Wednesday, 14:00

In another blow to the mainstream adoption of cryptocurrencies, British regulatory watchdogs have now resorted to the clampdown of the sale, marketing and distribution of crypto-based derivatives and exchange-traded notes [ETNs] to retail customers. The document released by the Financial Conduct Authority [FCA] titled, “Restricting contract for difference products sold to retail clients,” revealed the agency’s plans to publish a CP on a potential ban shortly.

The FCA paper said,

“Should we decide to proceed with a ban following that consultation, such rules would replace our final measures restricting how CFDs referencing cryptocurrencies are sold to retail clients.”

The guidance also cited that the FCA considered the derivatives and exchange-traded notes products as “unsuitable investments” for small retail investors with limited knowledge of both the value and risks tied to unregulated crypto-assets. Emphasizing on the drawbacks, Christopher Woolard, FCA Executive Director of Strategy & Competition, stated,

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

FCA estimated that retail investors would be spared from a loss of over $330 million to $570 million annually, if the clampdown comes to fruition.

The released document followed the public commitment within the UK Crypto-asset Taskforce Final Report, which was essentially an approach to access crypto-assets and distributed ledger technology [DLT] or blockchain tech in financial services.

The development unfolded less than a month after Woolard’s remark on Facebook’s ambitious crypto-project, Libra, wherein he highlighted important issues regarding user protection and privacy concerns. He had also questioned if the project was “acceptable and desirable in this space.”