FCA bans the sale of derivatives and ETNs to retail customers

By Megha Bhattacharya

The Financial Conduct Authority (FCA) recently published final rules for banning the sale of derivatives and exchange-traded notes. The organisation stated that the products cannot be reliably valued as these have a history of market abuse and financial crime, extreme volatility in cryptoasset price movements. There is also an inadequate understanding of cryptoassets by retail consumers and lack of legitimate investment need for retail consumers to invest. The ban will come into effect on the 6th of January, 2021.

FCA’s press release stated, “Unregulated transferable cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether or Ripple. Specified investments are types of investment which are specified in legislation. Firms that carry out particular types of regulated activity in relation to those investments must be authorised by the FCA.”

Therefore, the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (i.e. contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK. It estimates that retail consumers will save around £53m from the ban on these products.

Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA, said, “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here. Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”