Analysis

The Financial Conduct Authority (FCA) has published final rules banning the sale of derivatives and exchange traded notes (ETNs) that reference certain types of crypto assets to retail consumers.

The U.K. financial regulator said it considers these products to be ill-suited for retail consumers due to the harm they pose, asserting they cannot be reliably valued by retail consumers because of the: 

Specifically, the ban will affect “the sale, marketing and distribution” to retail investors of any derivatives contract or ETNs that linked to “unregulated transferable cryptoassets” issued by entities in or outside the UK.

The FCA classifies unregulated transferable cryptoassets as “tokens that are not ‘specified investments’ or e-money, and can be traded.” The term incorporates major cryptocurrencies like bitcoin, ether and XRP. 

The U.K. ban will come into effect on Jan. 6, 2021

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here,” said Sheldon Mills, interim executive director of Strategy & Competition at the FCA.

Mills said that high price volatility and the difficulty of “reliably” valuing crypto assets brought high levels of risk for retail investors.

“We have evidence of this happening on a significant scale,” he said “The ban provides an appropriate level of protection.”

The regulator suggested that retail consumers would save around £53 million from the ban on such derivative products.

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