FCA Proposes Ban on Sale of Crypto-Derivatives to Retail Consumers
FCA is proposing rules to address harm to retail consumers from the sale of derivatives and exchange-traded notes referencing certain types of crypto-assets. The consultation proposes to ban the sale, marketing, and distribution to all retail consumers of all derivatives (that is, contract for difference, options, and futures) and exchange-traded notes that reference unregulated transferable crypto-assets by firms acting in, or from, the UK. This consultation fulfills the FCA commitment in the UK Cryptoasset Taskforce Final Report to explore a potential ban. The consultation period ends on October 03, 2019. In case FCA decides to proceed with the final rules, it intends to publish a final policy statement and Handbook rules in early 2020.
FCA considers these products are ill-suited to retail consumers that cannot reliably assess the value and risks of derivatives or exchange-traded notes that reference certain crypto-assets (crypto-derivatives). This is due to the:
- Inherent nature of the underlying assets, which have no reliable basis for valuation
- Prevalence of market abuse and financial crime in the secondary market for crypto-assets (for example, cyber theft)
- Extreme volatility in crypto-asset prices movements
- Inadequate understanding by retail consumers of crypto-assets and the lack of a clear investment need for investment products referencing them
These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products. In January 2019, FCA also consulted on a guidance on crypto-assets (CP19/3) to clarify what types of crypto-assets fall within the current regulatory perimeter; the consultation closed on April 05, 2019. FCA expects to publish the final guidance on crypto-assets later in the summer and has reflected feedback to that consultation in the proposals for crypto-derivatives. This consultation will be relevant for firms issuing or creating products referencing crypto-assets; firms distributing products referencing crypto-assets, including brokers and investment platforms, and financial advisers; firms marketing products referencing crypto-assets; operators of trading venues and platforms; and retail consumers and consumer organizations
Comment Due Date: October 03, 2019
Keywords: Europe, UK, Banking, Securities, Crypto-Assets, Crypto-Derivatives, Exchanged-Traded Notes, FCA
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