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FCA is planning to restrict crypto derivatives

Jul 18, 2019

The UK's Financial Conduct Authority (FCA) is putting forward restrictions on the sale, marketing and distribution of derivatives such as CFDs, options and futures, as well as exchange-traded notes (ETNs) linked to "unregulated transferable cryptoassets".The aforesaid restrictions shall apply to all retail consumers and firms operating or based within the country. The regulator describes these actions as measures to protect private investors from serious financial loses.

The FCA considers these products as "ill-suited" for retail consumers "who cannot reliably assess the value and risks of derivatives or ETNs that reference certain cryptoassets (crypto-derivatives)."

The FCA’s decision was made on the grounds of numerous factors, in particular: (I) underlying crypto assets have "no reliable basis for valuation,"; (II) the possibility of "market abuse and financial crime" for these type of assets in secondary markets; (III) "ultimate" volatility in the crypto markets, (iv) an overall deficiency of information and understanding by retail investors.

Christopher Woolard, Executive Director of Strategy & Competition at the FCA, mentioned:

"As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets."

A decision to discuss the ban of crypto derivatives was previously announced by the FCA last November. It became even more relevant due to a recent variation in the price of bitcoin and its general volatility.

Global regulators have long encountered difficulties with derivatives related to crypto assets because of the widespread use of leverage, which allows users to increase the size of their trades.

On Monday, the FCA announced that it has completed rules limiting the sale of CFDs and CFD-like options to retail customers. The rules include mandated leverage restrictions of 2:1 on CFDs that reference cryptocurrencies. The FCA also added that it expects to publish its final “Guidance on Cryptoassets” later this summer.

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