UK bans sale of crypto derivatives to protect retail investors

UK bans sale of crypto derivatives to protect retail investors

An order proposed by the Financial Conduct Authority (FCA) of UK that imposes a ban on the sale of crypto derivatives across the region, has come into effect starting January 6th, 2021. Reportedly, the FCA has restricted the sale of derivatives and exchange of traded notes that reference some type of crypto assets to retail consumers.

Notably, the crypto-based derivatives are sold as tradable securities that gain value from an underlying asset, like an established cryptocurrency. Whereas, exchange-traded notes are unsecured debt traded in a similar manner to the stock market.

It is worth mentioning that, the value of these products highly depends on the value of cryptocurrencies like Ethereum and Bitcoin. Although, UK regulators believe that the industry is extremely risky for retail consumers to enter without any regulations.

According to a statement by FCA, exchange trade notes or ETN are highly unsuitable for retail consumers due to the inherent nature of underlying assets, frequent change in the price of crypto assets, value fluctuations, along with market abuse and scams in the industry.

Seemingly, due to these features, retail consumers may suffer from unexpected losses if they continue to invest in such financial products, the agency further stated.

For the record, offerings like crypto-referencing ETNs, contracts for difference, futures, and options cannot be marketed, distributed, and sold across the UK in case they are unregulated.

Elaborating further on the above, UK residents are refrained from trading in cryptocurrency or taking part in exchanges. The FCA focuses on products and tokens that track the market prices and are not mentioned as investments, like the direct purchase of cryptocurrencies.

Apparently, the ban has forced traditional financial organizations and asset managers like Hargreaves Lansdown to change their crypto-based offerings. A report by the FCA estimates that due to the ban, the retail investors may save nearly USD 72 million or £53 million.

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