UK regulator bans sale of cryptocurrency derivatives to retail investors

The UK Financial Conduct Authority (FCA) banned the sale of cryptocurrency-based derivatives and exchange-traded notes (ETNs) to retail traders.

The FCA says these products are not suitable for retail investors for a number of reasons. Among them, the regulator cited retail investors’ insufficient understanding of crypto assets and the volatility of digital currencies. As a result, retail traders cannot fully assess the risks associated with such products, the FCA argues.

The ban would reduce annual losses for retail investors by between £19 million and £101 million, according to the regulator.

The new rules apply to:

• companies issuing crypto derivatives;
• their providers, including brokers, investment platforms and financial advisers;
• firms promoting such products;
• operators of trading platforms;
• retail consumers and consumer organisations.

The ban takes effect on 6 January 2021.

The FCA had signalled its intention to ban the sale of cryptocurrency derivatives to retail investors as far back as 2018.

The regulator began consultations on the issue last year.

In October 2019, the World Federation of Exchanges, which groups exchange operators including Intercontinental Exchange (ICE), Nasdaq, Deutsche Börse, CME Group and London Stock Exchange Group, urged the FCA to abandon the initiative.

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