Digital currency derivatives ban now in effect in UK

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A ban on the sale of digital currency derivatives to retail investors in the U.K. has officially gone into effect. The ban was proposed by the Financial Conduct Authority (FCA) in October and became law on January 6.

As CoinGeek reported, the FCA said that derivatives weren’t suitable for retail customers because of the harm they pose. These customers can’t be able to accurately value the derivatives because of prevalence of market manipulation, extreme volatility, inadequate understanding and the inherent nature of digital assets, among other reasons, according to the regulator. With the ban, the regulator believes it will save £53 million ($72 million) in losses to investors.

This ban is now in effect. And while the watchdog is convinced the ban will protect consumers, some digital currency experts have disagreed. Many believe that the ban will only push the investors to unregulated platforms. The FCA has no authority over these platforms and it could lead to higher risks for the consumers.

Dermot O’Riordan is one of those opposing the ban. Dermot is a partner at Eden Block, a venture capital firm investing in blockchain startups. He believes that the ban shows the FCA’s lack of ability in regulating the digital currency industry. He stated:

“It’s a shame because the only players that actually are regulated (or want to be) to offer crypto derivatives products to retail (Coinshares, Crypto Facilities, etc.) are generally good actors. This move will drive retail users to unregulated platforms like Deribit and BitMEX who will offer even less protection than the regulated players. So, it’s not clear how the average retail user wins in this scenario.”

Traders in U.K. will still be able to access direct purchases of digital currencies despite the ban. On the flip side, for firms specializing in derivatives, the effect will be significant. One of these is CoinShares, a U.K. firm that’s the largest digital asset manager in Europe with $2.9 billion in assets under management. The firm has, however, downplayed the impact the ban will have.

The head of product at the firm Townhead Lansing claimed, “In terms of our business, nothing has changed since the announcement of the ban. We don’t expect it to have a material impact. We have a wide and diverse client base.”

Some in the industry have praised the ban. The CEX.IO executive director Konstantin Anissimov believes the ban was necessary to protect the customers. Speaking to CoinGeek, he stated:

“The regulation of cryptocurrency derivatives exchanges ensures that fair and reasonable levels of risks are presented to the general public, and essentially protects the investments of the retail investors. As we have already seen what has happened with BitMEX in the US, we believe that there will be a negative effect on the players in the market who ignored and neglected this regulation that has now come into force.”

See also: CoinGeek Live panel, Digital Currency & Global Compliance: Tools & Tips for Exchanges, Wallets & Other Service Providers