UK financial regulator bans crypto-based products for retail investors after review
- The UK's financial watchdog on Tuesday banned the sale, marketing, and distribution of certain crypto-based products for retail investors.
- The ban comes into effect from January 6, 2021.
- These products are considered "ill-suited" to retail consumers as they risk losing a lot of money mainly due to the difficulty of valuing crypto-assets, the Financial Conduct Authority said.
- Retail investors are expected to save around £53 million (R1.1 billion) from the ban.
- "This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here," an interim executive director at the FCA said.
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The UK's Financial Conduct Authority has banned the sale of certain types of crypto-based financial products for retail investors after a year-long review.
Britain's financial authority said unregulated cryptoassets are "ill-suited" to retail consumers for multiple reasons. These include unexpected losses, no reliable basis for valuation, volatility in price movements, a lack of understanding, and the absence of legitimate reasons for investment.
The FCA will ban firms acting in the UK from selling, marketing, and distributing products that track the price of cryptoassets. These would cover futures, options, contracts-for-difference (CFDs) and exchange-traded notes on cryptocurrencies.
Retail investors are expected to save around £53 million (R1.1 billion) from the ban, the FCA said. The measures, which will impact online trading platforms that trade Bitcoin, Ether, and Ripple, come into effect on January 6, 2021.
"This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here," Sheldon Mills, an interim executive director at the FCA, said in a statement.
The market for cryptocurrencies globally is worth around $337 billion, according to CoinMarketCap. This compares with a total market capitalisation of around $200 billion just two years ago.
The FCA's Mills said the regulator has evidence of retail investors losing massive volumes on trading crypto-derivatives and the ban would provide them an appropriate level of protection.
But the ban does not imply that the sale or use of Bitcoin itself would be hindered, according to Danny Scott, CEO and co-founder at CoinCorner.
"Recently the UK FCA introduced an option for Bitcoin and cryptocurrency companies to register with them as a first step towards forming a regulatory framework around such assets," Scott said.
"They're comfortable with these assets and seemingly have a pro stance, they're just not comfortable with companies packaging them up in traditional trader focused products that the everyday person doesn't understand, yet has easy access to via some services."
The decision comes almost a year after the FCA first proposed such a ban, citing unreliable retail consumer assessments of "complex contracts built on top of complex assets."
At the time, it was estimated that between £267 million and £451 million could be saved per year.
Cryptocurrencies have been in the spotlight lately. The co-founders of major online trading platform BitMEX were charged last week with violating US financial regulations. The total crypto-market capitalisation lost around $13 billion in the hours following news that BitMEX was charged with US regulation violations.
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