FCA bans crypto derivatives sale to retail investors

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The Financial Conduct Authority (FCA) has just banned the sale of digital currency derivative products to retail investors. 

“The FCA considers these products to be ill-suited for retail consumers due to the harm they pose,” says the FCA’s official announcement. “These products cannot be reliably valued by retail consumers because of the: 

• 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 crypto asset price movements
• inadequate understanding of crypto assets by retail consumers
• lack of legitimate investment need for retail consumers to invest in these products”

 Sheldon Mills, the 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 crypto assets 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.

The ban on digital currency derivatives will become effective on January 6, 2021, and the announcement specifically names BTC, ETH, and XRP as a few of the many underlying assets whose derivatives products will be prohibited. The FCA estimates that the ban will save retail investors roughly £53 million. 

A global clean-out 

It seems as though government bodies around the world are removing any harmful products or bad-actors from the blockchain and digital currency space. Within just one week, we have seen the CFTC press charges against BitMEX and its founders, John McAfee get arrested in Spain for some of his activities related to digital currency, and now, the FCA ban digital currency derivatives products from retail investors. 

It seems a bit too coincidental to be a coincidence that all three of these events happened consecutively; and by the looks of it, you can expect even more of the outlaws in the blockchain and digital currency space to face government action in the near future.