UK regulator bans cryptocurrency derivatives

The Financial Conduct Authority (FCA), the UK’s financial policeman, has announced that businesses in the territory will no longer be able to provide cryptocurrency derivatives to their customers.

This particularly applies to futures, options and exchange-traded notes (ETNs)

It’s historic. The products on cryptomonnaies will soon be subject to a total ban in the UK. To justify its decision , the British regulator, the FCA, says that these products are „ill-suited to retail consumers because of the damage they cause. “

This ban will come into effect on January 6, 2021 , and it affects the sale , promotion and distribution to all retail consumers. All derivatives are covered, including contracts for difference (CFDs), futures, options and exchange-traded notes (ETNs).

The FCA says consumers of cryptocurrency derivatives can be subject to sudden and significant financial losses. The regulator puts forward the following reasons:

the inherent nature of the underlying assets, which implies that they do not have a reliable basis for valuation;
the prevalence of market abuse and financial crime in the secondary market;
the extreme volatility of cryptocurrency price movements;
insufficient understanding of cryptocurrencies by consumers;
the absence of a legitimate investment need for retail consumers who invest in these products.
The FCA stresses that British consumers will have to be extra vigilant in the face of potential scams related to cryptocurrency derivatives. The regulator adds:

“As the sale of derivatives and ETNs that refer to crypto-assets to retail consumers is now prohibited, any business offering these services to retail consumers is likely to constitute a scam. “

Without specifying its method of calculation, the FCA estimates that this ban will save consumers around 53 million pounds (58.2 million euros).

A decision accelerated by the BitMEX case?

Last week news hit the cryptocurrency industry that the owners of the BitMEX exchange were accused by a US regulator of illegally operating a cryptocurrency derivatives trading platform and violating regulations. anti-money laundering.

The impact of these accusations was not long in coming, especially for the price of Bitcoin which has experienced a significant drop. On the BitMEX side itself, a significant chunk of its liquidity has skyrocketed, with thousands of traders fleeing the platform.

In the words of the FCA , it is more obvious that cryptocurrencies „hurt consumers and markets“, and this thinking is not new. It is in particular with this in mind that the regulator undertook in October 2018 to conduct a consultation on a possible ban on derivatives.

In July 2019, the FCA issued a memo , which summarized its final policy position on cryptocurrency derivatives. Discussions about this ban at the FCA had therefore been open for 2 years .

Thus, the recent litigation against BitMEX and its owners is not the reason the FCA made this decision, although it is conceivable that it has expedited the decision making.