FCA Plans to Ban Crypto Derivatives, ETNs

Last November, the agency first put forth its intention to ban these products.

The United Kingdom’s financial watchdog on Wednesday announced its intentions to ban the sale of crypto-based derivatives and exchange-traded notes (ETNs) to retail customers.

Per the Financial Conduct Authority (FCA), these investment instruments are “ill-suited” for retail investors who cannot access the value and risks associated with them.

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The FCA’s plan for this not an abrupt one as the agency is considering to ban retail sales of derivatives since last year. Finance Magnates also reported that the watchdog agency created a task force with staffs from the Treasury and the Bank of England to access the crypto-asset investment instruments.

Not suitable for unskilled investors

The agency pointed out the shortcomings of digital assets, mentioning that they have no reliable basis for valuation and are susceptible to market abuse and crime in the secondary markets. The volatility of the crypto market also restricts the ability of retail investors to understand the investment patterns.

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“These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products,” FCA stated.

It is estimating that banning these investment products will benefit retail customers by keeping them from loosing anywhere between £75 million ($94 million) to £234.3 million ($294.5 million) a year.

Though the decision to ban derivative products, including CFDs, options, and futures along with ETNs is not confirmed, the agency is consulting to put a ban on “the sale, marketing and distribution” of these products to all retail consumers.

“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,” Christopher Woolard, executive director of strategy & competition at the FCA, said.

Meanwhile, the FCA granted a license to crypto hedge fund Prime Factor Capital, making it the first such firm to receive the approval.

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