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FCA ban on cryptocurrency derivatives to retail customers comes into effect

  • FCA cryptocurrency derivatives ban comes into force on Jan. 6.
  • Regulated brokerages such as eToro are winding down their crypto derivatives services.
  • Unregulated firms will benefit from the ban.

The Financial Conduct Authority’s (FCA) ban on the sale of cryptocurrency derivatives and exchange-traded notes (ETNs) to the UK’s retail investors comes into force today.

The financial regulator published a notice of the ban in October last year because it “considers these products to be ill-suited for retail customers due to the harm they pose.

The FCA estimates that retail investors will save £53 million ($72 million) due to the derivatives ban on crypto assets.

This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here,” said Sheldon Mills, the interim Executive Director of Strategy & Communication as the regulator.

Per the statement, the unregulated cryptocurrencies are not considered as specified investments or e-money. The regulator gave Bitcoin, Ethereum, and Ripple’s XRP as examples. 

Since the announcement was made, a lot has changed and Ripple is currently facing a complaint from the U.S. Securities and Commission (SEC) for allegedly selling unregistered security tokens.

The regulator cited extreme price volatility, lack of intrinsic value, cybertheft, and lack of inadequate knowledge of the new asset class by retail investors as the reasons for the ban.

Regulated crypto derivatives firms pushed out of business

The ban has rendered any firm offering cryptocurrency derivatives to be a scam or lawbreaker. 

To address these harms, the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (ie contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable cryptoassets by firms acting in, or from, the UK,” reads part of the announcement.

Regulated brokerage firms have been affected by the ban. They are forced to stop offering these products or risk legal action taken against them by the financial regulator.

UK-regulated retail and institutional broker FXOpen stopped offering cryptocurrency derivatives on its platform on Jan. 5 to comply with the regulator.

“Following the decision by the Financial Conduct Authority (FCA) to prohibit retail clients from trading cryptocurrency CFDs, we regret to inform you as of 5th January 2021, you will not be unable to open any new cryptocurrency CFD orders or positions,” said the broker.

Industry analysts voiced their concern, claiming that regulated brokerages such as Coinshares, eToro, and Crypto Facilities will be affected by the ban, while unregulated platforms such as BitMEX, Deribit,  Bybit, and FTX will likely benefit from the ban.

The online trading platform IG is shutting down its crypto derivatives business in the wake of the ban.

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