UK Bans Sale of Crypto Derivatives to Retail Investors from January 2021

The U.K.’s Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives products to retail investors in a move that it says will save the targeted customers £53 million ($68.9 million) in losses each year. The ban comes into effect on January 6, 2021.

In a statement on October 6, the regulator declared that the sale, marketing, and distribution of any derivatives including contracts for difference, options, futures, and exchange-traded notes (ETNs) by any local or foreign company operating in the U.K. is banned.

The Authority said derivatives based on digital assets like bitcoin (BTC) or ethereum (ETH) are “ill-suited for retail consumers due to the harm they pose.” The FCA outlined a series of risks that it considers to result from such products. They include a lack of “reliable basis for valuation” for the underlying asset, market manipulation, and “extreme” price volatility.

It stated that retail clients lacked a “legitimate investment need to invest in these products”, and that they also did not fully understand derivatives trading. The ban, first proposed in July 2019, does not affect the trading of virtual currencies such as bitcoin, which are not regulated by the FCA.

Retail investors currently holding any such crypto derivatives will be allowed to keep them for as long as they want, Bloomberg reported. Sheldon Mills, interim executive director of strategy and competition at the FCA, commented:

Significant price volatility, combined with the inherent difficulties of valuing cryptoassets 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.

Shares of companies offering the banned derivatives fell in London trading on Tuesday. CMC Markets plc dropped 2.8% at the time of writing. Plus500 fell 2.1% and IG Group Holdings plc slid as much as 3.3%.

An executive at Coinshares, a U.K.- based exchange offering a variety of crypto derivatives, criticized the FCA saying the ban “will not result in the proposed savings and benefits…it will simply drive U.K. retail investors to unregulated crypto exchanges.”

“We see the FCA ban as further evidence of the U.K. turning its back on innovation in digital assets and on regulatory coordination with other jurisdictions,” the executive told news.Bitcoin.com via email.

“We find it difficult to see how the U.K. can be seen as welcoming of digital asset innovation when it is the only Western jurisdiction to ban them based on an erroneous belief that they have ‘no intrinsic value’.”