The Financial Conduct Authority (FCA) has informed about a new regulation that will prohibit retail investors in the United Kingdom (UK) from accessing crypto derivatives and exchange-traded notes (ETN) from next year. The most reason behind the development today is to prevent the investors from certain losses that come with crypto derivatives products, including crypto futures and options contracts.
FCA Blacklist Crypto Derivative for Retails
As per the information published today by the regulator, the “final rule” covers all unregulated and transferable cryptocurrency assets, including Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP). This means that derivatives products tied around these cryptocurrencies and other unregulated ones have been prohibited for the retail investors in the country. Precisely, the new regulation becomes effective from January 6, 2021.
The regulator warned that these products are ill-suited for the retail investors and could not be relied on because:
“ Inherent nature of the underlying assets, which means they have no reliable basis for valuation.  Prevalence of market abuse and financial crime in the secondary market (eg cyber theft).  Extreme volatility in cryptoasset price movements.  Inadequate understanding of cryptoassets by retail consumers.  Lack of legitimate investment needs for retail consumers to invest in these products.”
Investors Would Save $68M if They Avoid Crypto Derivatives
Investors holding any position in crypto derivatives or ETNs are likely to encounter unexpected losses. Thus, the FCA new regulation is geared at protecting the small investor from sudden losses. After the stated date, digital currency exchanges and trading platforms are no longer allowed to offer sales, marketing, or distribution of the products to the investors in the country.
According to the FCA, any companies that continued to promote these products to the investors after the stated date shall be regarded as an investment scam. Moreover, the regulator noted that the investors would save about £53m (over $68 million) if they avoid investing in crypto derivatives.
“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 & Competition at the Financial Conduct Authority. It remains unknown if other European countries might be joining in the trend.