FCA to Prohibit Sales of Crypto-derivatives to Retail Consumers in the UK

UK’s market regulator, the Financial Conduct Authority (FCA) is proposing a ban to stop the sales of derivative based on crypto assets to investors, according to the report by Finextra.

The FCA, per the report, noted that such a product, including the exchange-traded notes (ETNs), exposes retail consumers to a lot of risks; considering it as the prevalence of market abuse.

The financial watchdog considers these products as ill-suited to investors who cannot reliably assess the value and risks of derivatives or ETNs that reference certain digital assets (crypto-derivatives). 

According to the FCA, the volatility in the prices of cryptocurrencies, the products are not suitable for consumers, due to the lack of a clear investment need, and the risks associated with derivatives.

The regulator also raised concerns on the “inherent nature of the underlying assets,” adding that, they are not a reliable basis for valuation. Hence, retail consumers are likely to experience unexpected losses if they invest in the products.

The Executive Director of Strategy & Competition at the FCA, Christopher Woolard,  said,

Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile, and as we have seen globally, financial crime in crypto asset markets can lead to sudden and unexpected losses. It is therefore clear to us that these derivatives and exchange-traded notes are unsuitable investments for retail consumers.

Therefore, to address the issue, the FCA proposed to ban the marketing and distribution derivatives and ETNs by firms within the UK.

The retail consumers in the country will benefit an estimated amount of £75 million to £234.3 million a year, from banning these products, according to the regulator.

Despite the FCA proposal today, the watchdog recently issued approval to London-based crypto asset management firm, Prime Factor Capital as an Alternative Investment Fund Manager (AIFM).