After FATF Battle, Cryptoverse Has 3 Months for a Fight in the UK

Another regulatory battle has just been announced, as the UK financial watchdog said it wants to ban cryptocurrency derivatives to all retail consumers in the Kingdom.

“We are consulting on banning the sale, marketing and distribution of derivatives and exchange traded notes referencing cryptoassets to all retail consumers,” the Financial Conduct Authority (FCA) announced today.

Firms engaged in issuing, creating, distributing and marketing such products can send their comments to the FCA by 3 October.

“Should we decide to proceed with final rules, we intend to publish a final policy statement and Handbook rules in early 2020,” the watchdog said.

It claims that retail consumers can’t reliably assess the value and risks of derivatives (contracts for difference, futures and options) and exchange traded notes (ETNs) that reference certain cryptoassets.

The FCA estimates that a ban could reduce harm by GBP 75 million (USD 94 million) to GBP 234.3 million a year for retail investors.

“Prices are extremely volatile and as we have seen globally, financial crime in cryptoasset 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,” Christopher Woolard, Executive Director of Strategy & Competition at the FCA, was quoted as saying in the announcement.

Meanwhile, as reported yesterday, the crypto derivatives market is heating up as two major exchanges – Binance and BitMEX – are about to launch new products on their platforms.
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The major crypto derivatives platform, BitMEX reached c. USD 1 trillion in trading volume in 2018, according its CEO Arthur Hayes.

However, the FCA is not the only one concerned about the crypto derivatives market. Crypto derivatives, that offer “synthetic exposure” to traditional financial instruments, are inappropriate for retail investors, Philip Liu, co-founder and chief legal officer of Arca, a Los Angeles-based crypto investment management firm, warned recently.

The FCA announcement is another sign of the increasing regulatory oversight of the crypto market. As reported in June, the Financial Action Task Force (FATF), a multi-government body, agreed to implement their previous recommendations that would force governments to tighten oversight of the crypto business.