UK’s FCA Prohibits Offering Crypto Derivatives to Retail Clients

In a historic ruling, the UK’s FCA (Financial Conduct Authority) has announced that cryptocurrency derivatives related products such as options, futures and ETNs (exchange traded notes) will not be permitted to be offered to retail investors in the country.

The final ruling has come almost a year after the regulator initially suggested prohibiting crypto derivative product offerings. In a media release, the regulators have pointed out that cryptocurrency derivatives are “ill-suited for retail consumers due to the harm they pose.”

Multiple reasons were provided for the ban, including worries that there is no dependable method for valuation, are susceptible to misuse and financial frauds, and are terribly volatile.

Furthermore, another important reason for the ban was the FCA believes that retail consumers may have only a vague understanding of such products. The FCA also stated that retail investors does not have a “legitimate investment need” for such products.

The prohibition will become effective on January 6, 2021. The regulator cautioned that “as the sale of derivatives and ETNs that reference certain types of cryptoassets to retail consumers is now banned, any firm offering these services to retail consumers is likely to be a scam.”

Regulators have estimated that the decision would “save around £53m” for retail clients, supposedly in trading related losses.

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

One of the enterprises that were heavily affected by the prohibition will be CoinShares, which began a battle last year to persuade the market watchdog to suspend its intention. CoinShares offers ETN and other kinds of crypto assets targeting conventional markets.