In the UK, the Financial Market Supervisory Authority (FCA) has officially announced the ban on cryptocurrency derivatives.
The ban issued relates to the sale to retail clients of derivatives and exchange-traded notes (ETNs) that refer to certain types of cryptocurrency assets.
Therefore, it generally does not refer to the sale of these financial products, but only to the sale to non-professional investors. Also, it does not cover all cryptocurrency assets, but only certain types.
However, unregulated transferable cryptocurrency assets are defined as tokens that are not "specific investments " or electronic money, and they also include Bitcoin, Ether or XRP. Specific investments, on the other hand, are standardized types of investment included in the legislation.
In light of this, the FCA has decided to prohibit the sale, advertising and distribution to all retail users of any derivative or ETN that relates to non-regulated transferable cryptocurrency assets in the UK, including CFDs, futures and options.
Why crypto derivatives are banned in the UK
The agency considers that these products not They are suitable for retail customers because you believe that they cannot be reliably valued by non-professional investors.
The causes of this problem should be investigated:
- the intrinsic nature of the underlying assets, which do not have a reliable basis for valuation;
- in the proliferation of financial abuse, scams and theft in the secondary market;
- in the extreme volatility of the prices of crypto assets;
- inadequate understanding of these assets by retail customers;
- in the lack of legitimate investments.
Due to these problems, non-professional investors can suffer damages or losses if they invest in these products. Even the FCA itself estimates that the ban could generate savings of £ 53 million for these types of investors.
The ban will go into effect on January 6, 2021.
The Acting Executive Director of Strategy and Competition of the FCA, Sheldon mills, He said:
“This ban reflects how seriously we consider the potential harm to retail consumers of these products. Consumer protection is paramount here.
Significant price volatility, combined with the inherent difficulties of valuing crypto assets reliably, places retail consumers at high risk of suffering losses from trading crypto derivatives. We have evidence that this is happening on a significant scale. The ban provides an adequate level of protection ”.
While there is no evidence that ETNs are already being sold to retail clients in the UK market, other derivatives such as CFDs, futures and options are readily available, even on platforms that are widely used in this sector, such as Binance Futures.
On the other hand, it is not only in the UK that retail clients are warned against these types of financial products, because it is well known that most non-professional investors are not particularly aware of the risks involved in investing in high-end financial products. risk.
At this point, it is to be expected that the platforms that allow the exchange of these products in the United Kingdom will ask their customers to qualify as professional investors, and if they don't, prevent them from accessing these instruments.